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THE 


PRINCIPLES 


^POLITICAL   ECONOMY. 

0 


By  henry  VETHAKE,  L.L.D. 

ONE  OF  THE  PROFESSORS  IN  THE  UNIVERSITY  OF  PENNSYLVANIA ; 
A  MEMBER  OF  THE  AMERICAN  PHILOSOPHICAL  SOCIETY  ; 
••  &C. 


PHILADELPHIA : 

P.  H.  NICKLIN  &  T.  JOHNSON,  LAW  BOOKSELLERS, 

No.  2  South  Sixth  Street. 

1838. 


Entered  according  to  act  of  Congress,  in  the  year  1838, 

By  Henry  Vethake, 

in  the  office  of  the  Clerk  of  the  District  Court  of  the  Eastern  District  of  FennByl- 


^ 


I 


-/p 


TO  THE  NUMEROUS  YOUNG  MEN  WHO,  AT  DIFFERENT  PERIODS  DURING 
THE  LAST  SIXTEEN  YEARS,  HAVE  ATTENDED  HIS  LECTURES  ON  POLI- 
TICAL ECONOMY, 


Wxt  following  ^Treatise, 


EMBRACING  THE  SUBSTANCE  OF  THOSE  LECTURES,  TOGETHER  WITH 
SUCH  ADDITIONS  AND  ALTERATIONS  AS  HAVE  BEEN  SUGGESTED  BY 
HIS  LATEST  REFLECTIONS,  IS 

INSCRI BED 

BY   THEIR  FRIEND, 

THE    AUTHOR. 


O^"'" 


CORRECTIONS. 


Page    29 — fith  line  from  the  bottom,  for  "  transference"  read  "  transfer." 

J 10 — 1st  line  from  the  top,  omit  the  words,  "those  circumstances  which 

constitute." 
126 — 12th  line  from  the  top,  for  "  them"  read  "  these." 
127 — last  line  on  tiie  page,  for  "positions"  read  "propositions." 
1.33 — 13th  line  from  the  bottom,  after  "of"  read  "  a." 
159 — 1 5th  line  from  the  top,  for  "  thing"  read  "  things." 
167 — 16th  line  from  the  top,  for  "provided"  read  "especially  if." 
170 — 8lh  line  from  the  top,  insert  after  the  word  "  importation"  the  words 

"  or  production." 
222 — 17t]i  line  from  the  top,  in  place  of  the  words  "  in  order  to  lend  it"  read 

"  to  be  lent." 
251 — 2d  line  from  the  bottom,  for"  manner"  read  "  matter. 
288— 5th  line  from  the  bottom,  for  "18.32"  read  "  1833." 
306 — 13th  line  from  the  top,  for  "  phiianthrophist"  read"  philanthropist." 
332 — 14th  line  from  the  bottoni,  for  "  will"  read  "  shall." 
334 — 5th  line  from  the  bottom,  for  "economist"  read  "economists." 
371 — 8lii  line  from  the  bottom,  for  "  visits"  read  "  visit." 
376_i0th  and  14lh  lines  from  the  bottom,  for  "  tithes"  read  "  the  tithe." 
395 — 15th  line  from  the  top,  after   the  word  "government"  insert,  "to  be 

consumed  by  it  unproductively." 


PREFACE. 


The  following  treatise  is  a  systematic  exposition  of  the 
principles  of  political  economy.  Avoiding  almost  all  refer- 
ence to  other  writers  whose  opinions  differ  from  his  own,  and 
avoiding  also  any  direct  notice  of  the  controversies  which 
have  been  agitated  by  the  many  distinguished  men  who  have 
successively  occupied  the  path  of  investigation  in  which  he 
has  ventured  to  follow  them,  the  author  has  aimed  to  arrange 
the  various  topics  comprehended  in  his  general  subject  in  as 
logical  an  order  as  is  practicable,  and  in  a  manner  the  best 
adapted  for  the  instruction  of  the  student. 

The  difficulty,  however,  of  accomplishing  the  objects  aimed 
at  has  been  realised  by  him  to  too  great  an  extent,  for  him  to 
suppose  for  a  moment  that  he  has  succeeded  in  doing  more, 
than  approach  somewhat  nearer  to  their  accompKshment  than 
he  would  have  done,  but  for  the  efforts  which  he  has  repeatedly 
made  during  the  delivery  of  his  lectures,  in  a  period  of  not  less 
than  fifteen  years.  Much  of  this  difficulty,  it  may  be  observed, 


VI  PREFACE. 

arises  from  the  circumstance  of  there  being  scarcely  any  one 
topic,  in  the  whole  range  of  the  science  of  political  economy, 
which  has  not  relations  less  or  more  numerous  with  almost 
every  other.  Writers  on  the  subject  who  make  a  rule  to  them- 
selves to  treat  of  every  topic  in  succession  under  a  separate 
head,  never  formally  returning  to  it  the  second  time,  labour  for 
this  reason  under  a  great  disadvantage.  The  author  has  not 
hesitated  to  sacrifice  every  consideration,  in  respect  to 
arrangement,  to  that  of  being  enabled  to  advance  from  the 
beginning  to  the  end  of  his  treatise  without  taking  any  pro- 
position for  granted,  the  truth  of  which  he  had  not  previously 
endeavoured  to  establish. 

He  has,  besides,  in  no  case  made  use  of  any  technical  term, 
without  first  defining  it  with  as  much  exactness  as  was  in  his 
power,  or  without  defining  it  immediately  afterwards. 

And  it  may  be  proper  to  state  that,  to  adapt  what  he  has 
written  still  farther  to  the  purposes  of  instruction,  he  has 
divided  it  into  a  great  number  of  short  chapters  ;  thus  afford- 
ing frequent  resting  places,  whence  the  student  can  look  back 
and  survey  the  ground  over  which  he  has  advanced. 

But  while  his  work  is  offered  to  the  colleges,  and  other 
higher  seminaries  of  education  in  our  country,  as  a  text-book 
of  instruction  on  the  subject  of  which  it  treats,  he  is  desirous 
of  having  it  understood  at  the  outset,  that  it  is  neither  a  com- 
pilation from  the  works  of  others,  nor  a  mere  elementary 
treatise.  It  is  hoped  that  the  political  economist  will  find  in 
it  enough  of  novelty,  and  of  novelty  that  is  consistent  with 
truth,  for  him  not  to  regret  the  time  which  he  may  have 
bestowed  on  its  perusal. 


PREFACE.  VH 

Among  those  parts  of  the  present  treatise  which  the  author 
himself  is  disposed  to  regard  as  most  worthy  of  attention, 
is  first,  the  manner  in  which  the  whole  subject  is  introduced ; 
the  definitions  not  being  arbitrarily  given,  but,  on  the  con- 
trary, being  simply  the  assignment  of  names  to  classes  of 
objects.  The  classification  itself,  too,  is  always  founded  on 
the  nature  of  things  ;  and  the  names  are  assigned  as  much  as 
possible  in  accordance  with  common  usage. 

In  the  next  place,  the  hold  innovation  has  been  attempted 
of  comprehending  as  well  immaterial  or  intellectual  products 
as  those  which  are  material,  not  only  under  the  definition  of 
wealth,  but  likewise  of  capital.  What  are  the  advantages  of 
doing  so,  need  not  be  here  stated.  The  author  will  now  only 
remark  that  the  simultaneous  extension  in  this  manner  of  the 
terms  wealth  and  capital  he  considers  to  be  of  no  slight 
importance,  to  enable  the  reader  to  take  a  proper  view  of 
the  whole  ground  which  it  is  proposed  to  explore ;  and  that, 
perhaps  contrary  to  first  appearances,  our  language  in  refer- 
ence to  both  capital  and  wealth  will  become  thereby  more 
accordant  with  the  ordinary  modes  of  speech,  than  would 
otherwise  be  the  case.  Should  the  reader,  after  having 
advanced  through  the  fourth  chapter  of  the  first  book,  hesitate 
to  yield  his  assent  to  the  propriety  of  the  definitions  in  ques- 
tion, he  is  earnestly  requested,  when  he  shall  have  finished  the 
perusal  of  the  sixth  chapter  of  the  same  book,  to  reperuse  the 
preceding  fourth  chapter.  If  his  doubts  of  that  propriety  shall 
then  not  have  been  removed,  so  confident  of  it  is  the  author, 
that  hj  would  still  be  disposed  to  say  to  him  what  D'Alembert 
is  reported  to  have  said  to  a  young  aspirant  after  knowledge, 


VUl  PREFACE. 

who,  in  despite  of  all  the  explications  which  that  distinguished 
mathematician  could  give  him  of  the  metaphysics  of  the  cal- 
culus, was  obstinate  in  disbeheving  their  validity ;  to  wit,  to  go 
on  with  the  study  of  the  subject,  and  faith  will  in  the  end 
infallibly  come. 

The  author  would  direct  the  reader's  attention  particularly 
to  the  manner  in  which  the  theories  of  rent  and  of  population 
have  been  explained  and  modified, — theories  which  lie  at  the 
foundation  of  all  that  follows,  and  without  a  due  understanding 
of  which,  what  follows  will  appear  altogether  confused  and 
unintelligible.  Those  theories  are  now  presented  in  the  same 
form  as  that  in  which  they  have  been  delivered  in  the  author's 
courses  of  political  economy,  beginning  so  long  since  as  the 
year  1822.  His  views  too,  as  they  appear  in  the  present 
treatise,  relating  to  population,  in  connexion  especially  with 
the  subject  of  pauperism,  were  pubHshed  in  one  of  our  Ameri- 
can annuals,  in  1834.* 

It  may  also  be  mentioned  that  pohtical  economy  is  not 
regarded  in  the  present  treatise  as  a  science  only  of  a 
hypothetical  description,  and  as  having  no  necessary  con- 
nexion with  the  administration  of  public  affairs,  or  with  the 
transactions  of  private  hfe.  So  far  from  this,  one  great  object 
which  the  author  has  had  in  view,  has  been  to  point  out  its 
application  to  both  of  these ;  and  to  the  moral  relations  of 
the  science,  —  relations  which,  in  his  opinion,  confer  upon 
it  its  principal  importance, — he  has  given  a  peculiar  promi- 
nence. 

*  "  The  Annual  of  the  Board  of  Education,"  edited  by  the  Rev.  John  Breckin- 
ridge, D.  D. 


PREFACE.  IX 

« 

Every  effort,  moreover,  has  been  made  to  exhibit  the 
doctrines  of  political  economy  in  as  concise  a  form  as  is 
consistent  with  perspicuity,  in  reference  to  the  convenience  as 
well  of  the  student,  as  of  such  persons  as  may  already  be 
acquainted  with  the  existing  state  of  the  science.  The  former 
would,  very  probably,  be  repelled  from  the  study  of  a  much 
larger  treatise  ;  and  the  latter  would  be  quite  as  likely  as  any 
other  class  of  person^,  to  look  upon  a  great  book  as  a  great 
evil. 

The  conciseness  just  mentioned,  together  with  the  compli- 
cated nature  of  the  subject, — every  topic  which  it  embraces 
having  numerous  relations  to  almost  every  other,  as  has  been 
already  stated, — would  have  rendered  it  impossible  for  each 
separate  chapter  of  the  work  to  have  been  so  written  as  to 
be  wholly  intelligible  to  one  who  had  not  systematically 
perused  the  preceding  chapters.  While  the  author,  then,  will 
not  be  guilty  of  the  affectation  or  weakness  of  deprecating 
criticism,  he  asks  of  every  individual  who  wishes  to  deal 
fairly  with  him,  or  with  his  subject,  not  to  commence  the 
perusal  of  this  volume  at  the  middle  or  end,  but  to  commence 
at  the  beginning  of  it. 

With   these    remarks,    the   present   treatise    on  poHtical 
economy  is  respectfully  submitted  to  the  public- 
Philadelphia,  Feb.  1st,  1838. 


TABLE  OF  CONTENTS. 


BOOK  FIRST. 

Page 
Definitions  of  terms  ;  and  the  theory  of  value. 

Chapter  I.  —  Definitions    of   utility  and  wealth — Object  of 

political  economy.  13 

Chapter  II. — Relation  of  utility  to  wealth  illustrated — Defi- 
nitions of  labour,  value,  &c.  17 

Chapter  III. — Nature  of  money — The  precious  metals  consti- 
tute the  money  of  the  world.  23 

Chapter  IV. — Definitions  of  capital,  of  the  wages  of  labour, 
and  of  the  accumulation  of  wealth — Immaterial  as  well 
as  material  products  the  subjects  of  accumulation.  26 

Chapter  V. — Constituent  elements  of  capital — Productive 
and  unproductive  consumption — Distinction  of  capital 
into  fixed  and  circulating.  33 

Chapter  VI. — Distinction  between  the  labour  which  is  produc- 
tive and  that  which  is  unproductive — Why  it  may  be 
dispensed  with.  35 

Chapter  VII. — Influence  of  supply  and  demand  in  determin- 
ing the  exchangeable  value  of  a  commodity.  40 

Chapter  VIII. — The  same  subject  continued.  46 

Chapter  IX. — Natural  as  distinguished  from  market  prices — 

Natural  wages.  50 

Chapter  X. — The  subject  of  natural  wages  continued.  53 

Chapter  XI. — Natural  prices — General  rate  of  profits — Trans- 
fer of  capital.  57 


XU  TABLE  OF  COXTENTS. 

Page 
Chapter   XII.  —  Subject    of  natural  prices  continued — The 
ordinary  rates  of  profits — Determination  of  the  prices 
of  commodities  by  the  cost  of  producing  them.  61 

Chapter  XIII. — Effects  of  monopolies  on  prices.  64 

Chapter  XIV.— Of  rent.  68 

Chapter  XV. — The  subject  of  rent  continued — Distribution  of 
the  wealth  produced,  among  the  different  classes  of 
landlords,  capitalists,  and  labourers.  71 

Chapter  XVI — The  different  modes  in  which  the  cost  of  pro- 
duction, and  therefore  prices,  may  be  made  to  vary.  74 
Chapter  XVII. — The  price,  or  exchangeable  value,  of  any 
thing  cannot  be  regarded  as  determined  in  every 
instance  by  the  quantity  of  labour  applied,  from  first  to 
last,  in  producing  it.  80 

BOOK  SECOND. 

On  the  tendency  of  rents,  profits,  and  wages,  to  rise  or 
fall  in  the  progress  of  society  ; — together  with  the 
laws  which  determine  the  numbers  of  a  people. 

Chapter  I. — Eftects  of  the  diminishing  returns  from  the  land 
upon  the  exchangeable  value  of  the  different  products 
of  industry,  and  upon  rents — Objections  to  the  theory 
of  rent  refuted.  85 

Chapter  II. — Farther  effects  of  the  diminishing  returns  from 
the  land  on  the  exchangeable  values  of  commodities, 
on  the  sum  of  profits  and  wages,  on  profits,  and  on  the 
increase  of  population  and  wealth.  90 

Chapter  III. — Effects,  in  an  opposite  direction,  of  the  progress 

of  human  invention.  94 

Chapter  IV. — Intimate  connexion  of  the  subjects  of  wages 

and  population — Checks  to  population.  99 

Chapter  V. — The  subject  of  population  continued.  105 

Chapter  VI. — The  same  subject  continued — Habits  of  the  com- 
munity in  relation  to  marriage — How  those  habits  are 
to  be  improved.  110 


TABLE  OF  CONTENTS.  Xlll 

Pago 

Chapter  VII. — Means  of  enlarging  the  desires  of  men,  and  of 
inculcating  upon  them  habits  of  foresight — Influence 
of  moral  causes  in  determining  the  command  of  the 
community  over  the  necessaries  and  luxuries  of  life.         115 

Chapter  VIII. — An  increase  of  population  not  a  criterion  of 
national  prosperity — Emigration  from,  and  immigra- 
tion into,  a  country — Importance  of  capital  augmenting 
at  an  uniform  or  accelerated  rate.  120 

Chapter  IX. — Effects  of  cheap  or  dear  food  on  the  numbers 
and  condition  of  a  people — And  effects,  on  their  num- 
bers, of  an  extraordinary  mortality,  of  improvements 
in  medicine,  and  of  the  monastic  institutions.  124 

BOOK  THIRD. 

The  theories  of  money,  and  of  banking. 

Chapter  I. — On  the  comparative  value  of  gold  and  silver 
money,  in  different  countries,  and  at  different  times  in 
the  same  country.  130 

Chapter  II. — The  same  subject  continued.  135 

Chapter  III. — The  same  subject  continued.  139 

Chapter  IV. — Effects  of  the  use  of  paper  money.  143 

Chapter  V. — Of  the  different  constituent  portions  of  the  circu- 
lating medium  ;  and  their  relative  efficiency.  148 
Chapter  VI. — The  value  of  the  entire  circulating  medium 
remains  always   unaltered — Consequences   from   this 
principle.  150 
Chapter  VII. — The  different  kinds  of  banks — How  the  credit 

of  banks  of  circulation  is  maintained.  153 

Chapter  VIII. — Tendency  of  bank  notes  to  expel  specie  from 
the  circulation — Manner  in  which  the  notes  issued  by 
one  bank  check  the  issues  of  another.  157 

Chapter  IX. — Impossibility  of  permanently  expanding  the 
circulating  medium  of  a  country  beyond  the  amount 
which  is  determined  by  the  cost  of  producing  the 
precious  metals.  162 


XIV  TABLE  OP  CONTENTS. 


Chapter  X. — The  advantages,  real  or  supposed,   of  a  bank 

note  circulation.  166 

Chapter  XI. — Disadvantages  of  the  American  system  of  bank- 
ing. 172 
Chapter  XII. — The  same  subject  continued.  177 
Chapter  XIII. — The  same  subject  continued.                                182 
Chapter  XIV — Evils  improperly  attributed  to  banks  of  circu- 
lation— Effects  of  exacting  a  bonus  from   the  stock- 
holders of  a  bank  as  a  condition  of  its  being  incorpo- 
rated— And    effects  of  the  government  of  a  country 
assuming  to  itself  the  business  of  banking.  186 
Chapter  XV. — Comparative  advantages  and  disadvantages  of 
many  or  of  a  few  banks  of  circulation — Remarks  con- 
cerning a  national  bank — and   concerning  a  free  trade 
in  the  business  of  banking.                                                  192 
Chapter  XVI. — Liability  of  a  currency  to  be  more  expanded 
or  contracted,  according   as   it   consists  in   a  greater 
degree  of  paper  money — Inference  to  be  drawn.             195 
Chapter  XVII. — The  most  desirable  circulating  medium  for 

the  United  States.  200 

Chapter  XVIII. — Mode   of  abrogating  the  existing  banking 

system  of  the  country.  206 

Chapter  XIX. — Suspension  of  specie  payments  by  the  banks.    211 
Chapter  XX. — Debasement  of  the  currency.  217 

Chapter  XXI. — On  the  interest  of  money.  218 

BOOK  FOURTH. 

On  the  productiveness  in  the  same  degree  of  the  dif- 
ferent branches  of  industry  ;  and  on  the  interference 
with  the  natural  disti'ihution  among  them  of  labour 
and  capital. 

Chapter  I. — The  question  of  the   peculiar  productiveness  of 

agriculture  examined.  225 

Chapter  II. — Productiveness  of  commerce — The  commerce  of 

speculation — Dealers  in  money.  231 


TAHLE  OF  CONTENTS.  XT 

Page 
Chapter  III. — Of  commerce  with  a  foreign  country — Doctrine 

of  the  balance  of  trade.  235 

Chapter  IV. — The  subject  of  the  balance  of  trade  continued.    241 
Chapter  V. — On  the  amount  of  the  duty  upon  a  commodity, 
when  it  is  imported  from  abroad,  which  will  administer 
adequate  encouragement  to  the  domestic  producers.       244 
Chapter  VI. — Discussion  of  the  "  tariff  question."  248 

Chapter  VII. — The  subject  continued.  251 

Chapter  VIII. — The  same  subject  continued.  255 

Chapter  IX — The  same  subject  continued.  261 

Chapter  X. — Effects  of  bounties — Modifications  of  the  system 

of  free  trade.  266 

Chapter  XI. — Of  the  most  expedient  scale  of  duties — Inter- 
ferences with  the  system  of  free  trade  farther  consi- 
dered. 272 
Chapter  XII. — The  same  subject  continued.  278 
Chapter  XIII. — The  same  subject  continued.                                285 
Chapter  XIV. — On  the  terms  American  system,  and  American 
industry — Remarks  on  the  doctrine  that  a  tax  upon 
foreign  imports  is   incident  on   the   producers  of  the 
commodities  which  are  exported  in  exchange  for  them.  292 

BOOK  FIFTH. 

On  the  interference  of  individuals  and  of  governments 
with  the  natural  order  of  things,  founded  on  other 
grounds  than  the  unequal  productiveness  of  the  dif 
ferent  branches  of  industry. 

Chapter  I. — Analogy  on  the  effects  produced  by  the  inter- 
ferences of  individuals  and  of  governments  with  the 
natural  distribution  of  capital  and  labour — The  question 
examined,  as  to  what  proportion  of  a  person's  income 
it  would  most  contribute  to  the  national  welfare  for  him 
to  save.  298 

Chapter  II. — Mode  in  which  governments  have  interfered 
with  the  unproductive  expenditure  of  individuals — 
Mistaken  notions  by  which  the  action  of  governments 


XVI  TABLE  OF  CO'TEjVTS. 

Page 
have   been  sometimes  influenced — Application  of  the 
principles  of  political   economy  to  the  "  temperance 
question  ;"  and  to  the  bestowing  of  money  for  religious 
and  philanthropic  purposes.  304 

Chapter  III. — Ought  a  preference  to  be  given  to  one  branch 
of  industry  over  another,  because  of  the  greater  num- 
ber  of  labourers   employed   by  a   given    amount    of 
capital  ? — Whether  roads  and  canals  should  be  con- 
structed by  governments,  or  by  individuals  ?  311 
Chapter  IV. — Encouragement  of  intellectual  products.  317 
Chapter  V. — Effects  of  a  division  of  the  property  of  the  rich 
among  the  poor  ;  and  of  interferences  in  general  with 
the  property  of  the  rich  for  the  benefit  of  the  poor — 
Of  trades'  unions.  322 
Chapter  VI. — The  subject  of  trades  union's  continued.  327 
Chapter  VII. — Effects  of  a  legislative  regulation  of  the  hours 

of  labour.  332 

Chapter  VIII. — The  system  of  prison  labour  considered.  335 

Chapter  IX. — Of  absenteeism.  339 

Chapter  X. — Of  pauperism.  343 

Chapter  XI. — The  subject  of  pauperism  continued  349 

Chapter  XII.— Of  taxation.  356 

Chapter  XIII. — The  subject  of  taxation  continued.  360 

Chapter  XIV. — The  same  subject  continued.  365 

Chapter  XV. — The  same  subject  continued.  368 

Chapter  XVI. — The  same  subject  continued.  374 

Chapter  XVII. — The  same  subject  continued.  378 

Chapter  XVIII. — The  same  subject  continued.  383 

Chapter  XIX. — The  general  principles  of  taxation.  389 

Chapter  XX. — Of  a  national  debt.  396 

Conclusion.  402 

Addenda.  409 


THE 
PRINCIPLES 

OF 

POLITICAL    ECONOMY. 


BOOK  FIRST. 

DEFINITIONS  OF  TERMS ;  AND  THE  THEORY  OF  VALUE. 


CHAPTER  I. 

DEFIMTIONS  OF  UTILITY  AND  WEALTH OBJECT  OF  POLITICAL 

ECONOMY. 

If  we  look  around  us,  we  shall  perceive  that  society  is 
so  constituted,  that,  while  only  a  small  portion  of  mankind 
are  placed  by  Providence  in  circumstances  of  such  afflu- 
ence as  to  render  them  disinclined  to  make  any  exertions, 
whether  bodily  or  mental,  to  enlarge  their  means  of  enjoy- 
ment, most  persons  are  engaged  in  producing,  either  what  is 
to  be  directly  appropriated  to  satisfy  their  own  desires,  or, 
more  frequently,  what  is  destined,  by  being  exchanged  for 
the  products  of  the  labour  of  others,  to  minister  to  the  epjoy^ 
ment  of  their  fellow-men.  In  other  words,  most  men  are 
producers  of  utility,  in  the  sense  in  which  this  word  is  un- 
derstood in  political  economy.    For,  leaving  to  the  moralist 

3 


14  THE  PRINCIPLES  OF 

the  decision  of  the  question  whether  many  objects  of  man's 
pursuit  may  not  in  reality  be  injurious  to  him,  and  whether 
he  be  not  often  making  a  sacrifice  of  higher,  but  future, 
gratification,  or  even  sometimes  subjecting  himself  to  future 
suffering,  that  he  may  administer  to  himself  perhaps  a  small 
amount  only  of  present  enjoyment,  the  political  economist 
regards  every  thing  as  useful  which  is  capable  of  satisfying, 
in  any  degree  whatever,  any  of  man's  actual  wants  and 
desires.  Thus  spirituous  liquors  are  said  to  be  possessed  of 
utility,  because  they  are  of  a  nature  to  be  objects  of  men's 
desire ;  which  desire  they  evince,  and  afford  a  measure  of, 
by  the  sacrifices  they  are  willing  to  make  in  order  to  obtain 
them;  and  this  utility  is  ascribed  to  those  articles,  notwith- 
standing that  their  use  may,  in  most  cases,  be  justly  con- 
demned, and  the  philanthropist,  and  the  christian,  may  feel  it 
a  duty  to  make  every  proper  exertion  to  repress  the  incon- 
veniences, or  mischiefs,  they  occasion. 

But  I  wish  not  to  be  misunderstood.  I  do  not  mean 
to  insinuate,  or  to  admit,  that  the  political  economist,  because 
he  employs  the  word  utility  in  reference  to  man  as  he  is, 
and  not  as  he  ought  to  be,  and  because  the  immediate  object 
he  has  in  view  is  not  the  moral  improvement  of  the  species, 
adopts  a  low  standard  of  morals,  or  is  indifferent  to  such 
improvement.  As  well  might  the  votary  of  any  one  de- 
partment of  science  be  fairly  chargeable  with  necessarily 
undervaluing,  and  taking  no  interest  in  the  progress  of,  any 
other ;  and  the  pursuits  of  the  astronomer  or  chemist  be 
condemned  as  vicious  in  their  tendency,  because,  in  observing 
the  phenomena,  and  investigating  the  laws,  of  material  nature, 
they  take  no  cognizance  of  the  categories  of  right  and 
wrong.  So  far  indeed,  I  may  remark,  is  the  science  of 
political  economy  from  leading  to  conclusions  adverse  to  the 
bests  interests  of  mankind,  and  so  far  is  it  from  even  turning 
the  attention  of  individuals,  or  of  governments,  entirely  from 
moral    to   physical   considerations,   and    teaching  them  to 


POLITICAL  ECONOMY.  15 

advance  the  happiness  of  society  by  measures  wholly 
unconnected  with  morality,  that  I  hope  to  make  it  appear  to 
the  conviction  of  my  readers,  as  a  legitimate  deduction  from 
the  principles  of  the  science,  that  there  is  no  more  efficient 
method  of  promoting  the  physical  well-being  of  a  people  than 
to  diffuse  among  them,  as  extensively  as  possible,  the  blessings 
of  religion,  of  morals,  and  of  education.  It  may  likewise  be 
added,  that  no  branch  of  human  knowledge  exhibits  to  us 
more  beautiful  illustrations  of  the  consistency  of  all  truth,  and 
of  that  unity  of  design  which  pervades  the  various  provinces 
of  creation. 

No  person,  after  having  become  acquainted  with  the 
elements  of  our  subject,  will  fail  to  perceive  the  desirableness, 
if  not  the  necessity,  of  having  some  word  to  designate  the 
idea  intended  to  be  conveyed  by  the  term  utility,  as  I  have 
defined  it ;  and  if  any  inconveniences  should  result  from  the 
same  term  being  occasionally  employed  in  another  accepta- 
tion, this  will  only  be  one  of  many  instances  of  a  similar 
kind,  which  are  continually  occurring  out  of  the  domain  of 
the  exact  sciences,  and  which  require  from  the  student,  as  an 
essential  condition  to  the  acquisition  of  real  knowledge,  a 
certain  perspicacity  in  readily  perceiving  the  different  shades 
of  meaning  of  which  the  same  forms  of  language  admit. 
Whenever  also  an  idea  is  considered  as  of  sufficient  importance 
to  require  it  to  be  designated  by  a  single  term,  almost  the 
only  practicable  method  of  proceeding,  in  fixing  upon  the 
proper  w^ord  for  the  purpose  intended,  is  to  select  such  an 
one  as  is  already  employed  to  denote  some  idea  bearing  an 
analogy  to  that  which  is  to  be  expressed ;  for  to  coin  an 
entirely  new  word  may  be  regarded  as  wholly  out  of  the 
question.  The  closer,  too,  the  analogy,  the  better,  as  less 
violence  is  then  done  to  existing  usage.  Now  in  the  instance 
under  consideration,  the  term  utiUty  is  certainly  employed  very 
much  in  accordance  with  the  meaning  attached  to  it  in  com- 
mon language.    We  speak  of  a  bad  use  of  an  object,  as  well 


16  THE  PRINCIPLES  OP 

as  of  a  good  use  of  it ;  and  we  speak  of  the  utility  of 
weapons,  both  of  offence  and  defence,  although,  if  men  were 
prevented,  by  the  non-existence  of  those  of  the  former 
description,  from  injuring  one  another,  a  considerable 
addition  would  be  implied  to  the  sum  of  human  happiness. 
It  seems  to  me,  then,  that  it  cannot  reasonably  be  denied 
that  the  poUtical  economists  are  fully  justified  in  the  use  they 
make  of  the  term  utility ;  while  it  may  be  allowed,  that  they 
are  also  called  upon  to  be  cautious  how  they  confound  this  use 
of  it  with  its  more  dignified  acceptation,  when  it  refers,  not 
to  the  gratification  alone  of  his  present  desires,  but  to  man's 
happiness  in  reference  to  the  whole  of  his  future  career. 

Of  the  various  objects  which  are  possessed  of  utility,  there 
are  a  few  distinguished  from  the  rest,  by  one  of  these  two 
pecuharities ;  that  they  are  either  not  susceptible  of  being 
appropriated, — or  are  supplied  to  us  gratuitously  in  such 
abundance  by  the  Hberality  of  nature,  that  no  one  is  willing 
to  bestow  his  labour,  or  what  amounts  to  the  same  thing,  the 
products  of  his  labour,  for  the  purpose  of  procuring  them. 
The  air  we  breathe,  the  light  and  heat  of  the  sun,  and,  very 
generally,  the  water  we  drink,  are  examples  of  this  class. 
All  other  objects  having  utility,  besides  these,  are  compre- 
hended under  the  general  denomination  of  wealth. 

Since  the  very  small  number  of  things  useful  which  do  not 
constitute  any  portion  of  wealth  are,  from  their  very  nature, 
never  the  products  of  human  labour,  to  produce  and  to 
consume  wealth  are  entirely  synonymous  with  the  production 
and  consumption  of  utility. 

And  the  province  of  political  economy  may  now  be  stated 
to  be,  to  determine  the  laws  which  regulate  the  production, 
distribution,  and  consumption,  of  wealth ;  with  the  practical 
object  in  view  of  ascertaining  the  course  to  be  pursued,  or 
avoided,  by  individuals,  and  by  governments,  in  the  disposal 
of  the  wealth  under  their  control,  so  as  to  promote,  in  as 
great  a  degree  as  possible,  the  happiness  of  mankind. 


POLITICAL  ECONOMY.  17 


CHAPTER  II. 

RELATION    OF  UTILITY  TO  WEALTH  ILLUSTRATED DEFINITIONS  OP 

LABOUR,  VALUE,  &C. 

From  the  definitions  given  in  the  preceding  chapter,  it 
follows  that  utility  and  wealth  are  not  indicative  of  two 
independent  classes  of  things,  but  that  the  one  class 
is  comprehensive  of  the  other.  All  wealth  is  useful.  On  the 
other  hand,  whatever  is  useful  is  not  necessarily  a  portion  of 
wealth. 

That  which  is  incapable  of  being  appropriated,  or  is 
supplied  to  us  without  limit,  can  have  no  claim  to  be  styled 
wealth,  however  great  the  degree  of  its  utility  may  be. 
Hence  a  case  may  be  supposed  seemingly  paradoxical.  Let 
the  supply  of  a  certain  article  of  wealth,  bread  for  example, 
be  indefinitely  augmented.  Like  atmospheric  air,  it  will 
constitute  no  portion  of  wealth.  By  increasing  the  wealth 
of  the  community  then, — we  have  diminished  it.  This  seems 
certainly  much  like  a  contradiction  in  terms.  Yet  the 
difficulty  is  of  very  easy  explanation.  In  the  two  cases, 
before  and  after  the  indefinite  augmentation  of  the  stock  of 
bread,  this  article  has  merely  a  different  place  in  our  classifi- 
cation. In  the  former  case,  it  is  classed  under  the  head  of 
wealth ;  in  the  latter,  it  is  ranked  with  the  few  useful  objects 
which  have  been  excluded  from  our  definition  of  that  term. 

If  we  now  make  a  contrary  supposition,  such  as  that 
water  has  become  scarce  in  a  beseiged  town,  where  it  was 
before  so  readily  and  abundantly  procurable  as  to  be  had 
gratuitously,  the  consequence  will  plainly  be  that  it  must 
henceforth  be  regarded  as  wealth ;  and  the  enemy  may, 
therefore,  by  simply  cutting  off"  the  supply  of  water,  have 
increased  the  wealth  of  those  whom  he  has  been  making 


18  THE  PRINCIPLES  OF 

every  exertion  to  distress.  Here  likewise,  it  must  be  hardly- 
necessary  to  remark,  the  seeming  contradiction  arises  from 
the  removal  of  the  article  in  question  from  one  of  our  classes 
to  the  other.  And  when  this  is  distinctly  perceived  by  the 
reader,  any  suppositions  of  the  kind  which  may  be  made  will 
form  no  objection  with  him  to  the  propriety  of  our  defini- 
tions. 

Again,  according  to  our  definition  of  wealth,  it  will  be 
proper  to  say  of  a  man  who  has  only  a  sixpence  in  the  world, 
that  he  is  possessed  of  wealth.  The  expression  may  perhaps, 
to  some  ears,  sound  not  a  little  singular  ;  and  it  will  be  because 
we  frequently  employ  the  word  wealth  in  a  relative  acceptation, 
as  implying  a  more  than  usual  amount  of  the  various  objects 
which  I  have  stated  it  to  comprehend.  This,  however,  ought 
not  for  a  moment  to  cast  any  doubt  on  the  propriety  of  the 
definition  of  it  above  given.  There  are  two  points  to  be 
considered  in  the  business  of  defining.  The  one  has  reference 
to  our  classifications  or  arratigements :  the  other  to  the 
name  by  which  a  class  of  ideas  or  objects  is  to  be  designated, 
after  it  is  once  formed.  The  former  is  generally  the  more 
important  of  the  two ;  although  the  latter  is  very  far  from 
being  unimportant.  We  must  first  examine  whether  a  certain 
number  of  objects  possess  common  properties  which  are 
fitted  to  render  them  interesting  as  a  class,  in  their  relations 
to  science  or  the  ordinary  purposes  of  life,  so  as  to  require  to 
be  frequently  spoken  of  together ;  and  this  point  being  deter- 
mined in  the  affirmative,  nothing  remains,  as  has  been  already 
mentioned,  than  to  apply,  to  designate  the  class,  that  word 
which  has  been  hitherto  used  in  an  acceptation  the  most 
analogous.  In  the  instance  under  consideration,  there  can 
be  no  question  of  the  importance  as  a  class  of  the  objects  I 
have  denominated  wealth :  the  only  dispute  must  be  as  to 
its  name,  respecting  which  I  shall  say  more  as  I  advance  in 
my  subject.  At  present,  I  shall  merely  observe  that  the 
definition  of  wealth  which  I  have  adopted  can  be  shewn  to  be 


POLITICAL  ECONOMY.  19 

improper  in  only  one  or  other  of  two  ways ;  first,  by  pointing 
out  some  other  word  whose  ordinary  meaning  is  more 
analogous  than  is  that  of  wealth  to  what  this  is  intended  to 
denote;  or,  secondly,  by  showing  that,  however  desirable  it 
may  be  to  bestow  some  name  upon  the  class  of  objects  which 
I  call  wealth,  the  word  wealth  should,  nevertheless,  be  reserved 
to  designate  another  class  of  objects,  still  more  analogous  in 
its  nature  to  what  that  word  signifies  in  ordinary  usage.  He 
who  is  unprepared  to  do  either  of  these  has,  as  yet,  no  right 
to  object  to  the  use  I  make  of  the  word ;  even  though  it  should 
partake  occasionally  of  that  ambiguity  which  is  so  frequently 
the  result  of  the  poverty  of  language. 

When,  however,  in  a  certain  context,  the  word  wealth 
has  been  so  exclusively  used  in  a  relative  sense  as  to  render 
it  singular  to  apply  it  absolutely,  and  this  application  of  it 
can  be  readily  avoided,  it  seems  to  me  that  it  would  be  well 
to  adhere  to  the  established  usage  in  the  case.  The  phrase,  a 
man  of  wealth,  is  an  instance  of  this  sort.  Butwherei  usage  is 
not  so  decided  as  here,  it  would,  perhaps,  be  better  to  avoid 
the  ambiguous  expression  altogether,  if  it  can  be  done  without 
aM'kwardness. 

The  adjective  wealthy  is  always  employed  in  a  relative 
acceptation. 

By  the  wealth  of  a  community  or  nation,  is  meant  all  the 
wealth  which  is  possessed  by  the  persons  composing  it,  either 
in  their  individual  or  corporate  capacities. 

I  have  already  had  occasion  to  use  the  word  labour ;  and, 
in  doing  so,  it  was  scarcely  possible  for  my  meaning  to  have 
been  misunderstood.  Still  it  may  be  as  well  for  me  to  define 
it  with  as  much  precision  as  I  can,  with  a  view  to  avoid  all 
future  misunderstanding.  Labour  then, — it  is  of  human 
labour  alone  of  which  I  speak, — is  exertion  of  body  or  mind, 
and  exertion  of  a  painful  or  at  least  disagreeable  nature, 
which,  of  course,  one  only  consents  to  make  with  the  pros- 
pect of  receiving,  sooner  or  latter,  an  adequate  compensation. 


20  THE    PRINCIPLES  OF 

There  is,  consequently,  much  muscular  action,  and  voluntary 
muscular  action  too,  that  is  not  labour.  It  would  be  unplea- 
sant for  us  not  to  exert  our  bodily  or  muscular  powers  in  a 
certain  degree.  Indeed  the  pain  of  absolute  and  continued 
repose  would  be  intolerable.  So  likewise  with  respect  to  the 
mind.  All  thought  is  not  intellectual  labour :  only  that 
thought  is  laborious  which  implies  continued  study. 

If  labour  be  thus  defined,  we  may  conceive  of  the 
occasional  existence  of  wealth  without  its  having  been  produced 
by  labour.  Of  this  nature  is  the  game  obtained  in  the 
exercise  of  the  pleasures  of  the  chase,  the  fruit  that  is  plucked 
by  the  traveller  from  a  bush  growing  wild  by  the  way  side,  or 
a  precious  stone  unexpectedly  picked  up  by  him  who  is  engaged 
in  exploring  the  solitary  places  of  the  earth,  in  search  of 
objects  of  a  different  description.  Wealth  of  this  kind  bears, 
however,  a  very  inconsiderable  proportion  to  that  which 
labour  produces.  The  errour  would  therefore  have  been  an 
insignificant  one,  at  least  practically  speaking,  had  wealth  been 
defined  to  consist  of  "  the  products  of  labour ;"  or,  to  express 
myself  in  equivalent  terms,  when  we  say  that  those  products 
constitute  all  that  we  mean  by  wealth,  we  shall  be  asserting 
what  is  very  nearly  coincident  with  the  definition  of  it  already 
adopted, — so  nearly  coincident  with  it  as  to  justify  me,  when 
I  hereafter  speak  of  wealth,  in  regarding  it  generally  as 
identical  with  the  products  of  labour. 

Although  I  have  comprehended  the  utility  which  is  the 
product  of  intellectual,  equally  with  that  which  is  the  product 
of  bodily  labour,  under  the  denomination  of  wealth,  it  will  be 
perceived  that  I  exclude  the  labour  by  which  wealth  is  pro- 
duced from  being  thus  denominated.  But  it  may  be  said  that 
men  are  ever  to  be  found  who  are  willing  to  exchange  what 
they  have  procured  by  means  of  their  own  labour,  and,  in 
general,  a  portion  of  what  they  possess,  for  the  labour  of  others, 
and  that,  on  this  account,  labour  ought  itself  to  find  a  place 
in  the  inventory  of  wealth.    Not  so,  however ;  because  the 


POLITICAL  ECONOMY.  21 

only  reason  why  labour  has  any  exchangeable  value  is  its  pro- 
ductiveness. When  wages  are  paid  to  the  labourer,  what  is  in 
reality  purchased  are  the  services  rendered  by  him,  or,  in  other 
words,  the  products  of  his  labour.  So  too,  where  the 
institution  of  slavery  exists,  the  price  of  the  slave  must  be 
viewed  as  a  payment  in  part  for  what  his  labour  is  expected 
to  produce ;  his  maintenance  constituting  the  remaining  part 
of  that  payment.  To  class  labour,  therefore,  with  the  products 
of  labour,  under  the  same  name,  would  not  only  be  to  confound 
together  cause  and  effect,  but  would  also  be  estimating  the  latter 
twice.  It  is  true  that  no  practical  errour  would  result  from 
thus  in  every  case  doubUng  the  amount  of  existing  wealth, 
because  the  same  proportion  would  still  continue  between  the 
wealth  of  one  country  and  that  of  another,  as  well  as  between 
the  wealth  of  a  country  at  any  one  period  of  time  and  its 
wealth  at  any  other  period.  But  notwithstanding  this,  the 
advantages  of  not  denominating  labour  wealth,  and  of  applying 
this  term  only  to  the  products  of  labour,  will,  I  think,  be  found 
to  be  far  from  inconsiderable,  in  reference  both  to  the  precision 
of  our  classifications,  and  the  simpHcity  of  our  language,  in 
political  economy. 

Every  species  of  wealth  is  occasionally  exchanged  by  its 
owner  for  other  portions  of  it,  the  possession  of  which  is 
preferred  by  him  at  the  time  of  making  the  exchange ;  and 
what  is  ordinarily  given  in  exchange  for  any  product,  at  a 
given  time  and  place,  or  in  the  same  market,  is  called  its 
exchangeable  value.  Thus  if  three  hats  w^ere  ordinarily 
exchanged  for  a  coat,  it  would  be  equally  proper  to  say,  that 
the  exchangeable  value  of  a  coat  was  three  hats,  and  that  the 
exchangeable  value  of  a  hat  was  the  third  part  of  a  coat.  The 
same  of  any  other  portions  of  wealth,  whether  material  or 
immaterial.  And  so  too  of  labour,  although  labour  be  not 
included,  excepting  metaphorically,  under  the  designation  of 
wealth. 

Value  _has  sometimes  been  distinguished  into  exchangeable 

4 


22  THE  PRINCirLES  OF 

value  or  value  in  exchange,  and  value  in  use.  But  as  value 
in  use  is  altogether  synonymous  with  utility,  the  employment 
of  it  may  be  dispensed  with.  When  I  speak  of  value,  I  shall, 
accordingly,  always  mean  exchangeable  value. 

Whatever  is  offered  in  the  market  for  any  thing  else  is 
denominated  a  commodity.  Every  species  of  wealth  is,  there- 
fore, a  commodity.     And  labour  is  one  also. 

From  the  definitions  of  the  terms,  we  may  infer  that  the 
exchangeable  value  of  any  commodity  may  be  expressed  in  as 
many  different  forms  of  speech  as  there  are  other  commodities 
for  which  it  is  ordinarily  exchanged.  As  all  wealth  is,  how- 
ever, most  frequently  exchanged  for  money,  it  becomes 
desirable  to  have  some  word  to  designate  the  exchangeable 
value  of  a  commodity  when  estimated  in  money  ;  and  this  is 
what  is  meant  by  the  term  frice. 

It  must  be  obvious  that  wealth  may  be  defined,  in  perfect 
consistency  with  the  definition  of  it  originally  given,  to  consist 
of  every  thing,  material  or  immaterial,  having  exchangeable 
value;  with  the  exception  alone,  as  in  the  case  of  that  definition, 
of  human  labour,  when  this  is  understood  strictly  as  applying  to 
labour  itself,  and  not  to  the  services  or  products  of  labour. 
And  it  may  perhaps  appear  to  some  of  my  readers  that 
the  last  mentioned  definition  would  be  the  simpler,  and 
therefore  to  be  preferred,  of  the  two.  For  the  possession  of 
utility,  the  capacity  of  appropriation,  and  the  existence  of  a 
commodity  in  limited  quantity,  it  substitutes  the  single  condi- 
tion of  having  exchangeable  value.  I  have,  nevertheless, 
based  the  present  treatise  on  the  former  definition,  as 
the  more  philosophical  one ;  •  since  the  only  reason  why  an 
object  has  exchangeable  value,  is  because  of  its  being  pos- 
sessed of  utility,  because  it  can  be  appropriated,  and  because 
its  supply  is  not  unUmited. 


POLITICAL    ECONOMY.  23 


CHAPTER  III. 

NATURE    OF    MONEY — THE     PRECIOUS    METALS    CONSTITUTE     THE 
MONEY  OF  THE  WORLD. 

Money  is  that  commodity  which  is  most  frequently- 
exchanged  for  every  other. 

I  might,  with  perhaps  sufficient  propriety,  content  myself, 
for  the  present,  with  this  very  general  statement  of  the  nature 
of  money.  But  as  many  of  the  false  theories  that  prevail 
concerning  it  are  founded  on  misapprehensions  of  its  true 
nature,  it  may  not  be  altogether  inexpedient  to  say  something 
more,  at  once,  on  the  subject. 

The  attention  of  my  readers  may  be  called  to  the  fact,  that 
the  precious  metals — gold  and  silver — constitute  the  money 
of  the  world  ;  although  in  peculiar  states  of  society,  and  in 
certain  secluded  districts,  a  variety  of  other  commodities  may 
have  been  employed  as  the  medium  of  exchange  ;  for  example, 
cattle  among  nations  of  shepherds,  certain  ornamental  shells 
among  some  very  rude  tribes,  salt  in  Abyssinia,  and  iron 
among  the  Lacedasmonians  of  the  age  of  Lycurgus.  In 
calling  gold  and  silver  the  money  of  the  world,  it  is  possible 
that  I  may  seem  to  have  overlooked  the  copper  money,  and 
the  paper  money,  in  circulation.  The  former,  however,  is 
used  only  for  purchases  of  small  value  ;  and  the  whole  amount 
of  it  is  but  an  inconsiderable  portion  of  the  circulating 
medium.  It  may  be  observed  with  respect  to  the  latter,  that, 
in  most  cases,  the  reason  of  its  constituting  a  portion  of  that 
medium  is,  that  it  is  the  record,  and  the  evidence,  of  an  obli- 
gation to  pay  on  demand,  or  at  a  future  day,  a  certain  value 
estimated  in  the  precious  metals.  It  is  also  worthy  of  remark, 
that  the  pajaiients  made,  or  moneys  transmitted,  from  one 
country  to  another,  consist  almost  exclusively  of  these  metals. 


24  THE    PRINCIPLES    OF 

Not  only  would  the  quantity  of  copper  money  in  circulation 
be  wholly  inadequate  for  such  a  purpose,  but  the  expense  of 
its  transportation  would  put  this  out  of  the  question ;  and  as 
to  paper  money,  it  maintains,  generally  speaking,  its  full 
credit,  and  therefore  value,  only  in  the  country  where  it  is 
issued,  and  where  it  is  convertible  into  specie,  which  will,  of 
course,  be  sent  abroad  in  preference  to  it. 

And  it  may  not  be  here  out  of  place  for  me  to  answer  the 
inquiry,  which  must  naturally  present  itself,  how  it  has  hap- 
pened, that  gold  and  silver  have  obtained  a  preference  over  all 
other  commodities,  as  the  general  medium  of  exchange.  This 
will  be  very  readily  understood,  if  we  first  look  at  the  inconveni- 
ences to  which  society,  as  it  is  at  present  constituted,  would 
be  subjected,  were  there  no  circulating  medium, — and  at  the 
manner  in  which  men  would  naturally  proceed  in  order  to 
supply  that  deficiency.  Take  the  case  of  the  baker,  and 
suppose  him  to  be  desirous  of  procuring  butcher's  meat.  He 
goes,  accordingly,  with  his  loaves,  to  the  butcher,  who  may 
very  possibly  already  be  sufficiently  supplied  with  bread ;  and 
he  may  therefore  be  obliged  to  go  to  another,  and  another, 
before  he  is  able  to  accompHsh  his  object.  So  likewise  may 
the  case  be  in  reference  to  other  commodities,  and  other 
tradesmen.  Every  individual  will,  however,  gradually  learn 
of  what  articles  the  persons  with  whom  he  deals  are  most 
frequently  in  need,  and  will  be  desirous  to  have  a  supply  of 
them  in  his  own  possession,  to  facihtate  by  this  means  the 
making  of  his  purchases.  Instead  of  exchanging  directly  the 
products  of  his  industry  for  what  he  intends  to  consume,  he 
will  procure  with  a  portion  of  them,  in  the  first  instance,  what 
may  thus  serve  him  as  a  medium  of  exchange.  In  this  manner 
too,  we  can  perceive  without  difficulty  that,  where  there  are 
one  or  two  commodities,  whose  properties  render  them  better 
fitted  than  any  others  to  constitute  such  a  medium,  they  will 
be  gradually  adopted  for  that  purpose.  Now  the  precious 
metals  have  properties  of  the  kind  adverted  to  in  a  very  striking 


POLITICAL    ECONOMY.  25 

degree.  These  are,  first,  their  durabiUty:  they  do  not  deteri- 
orate in  quantity,  or  quality,  by  being  kept  on  hand.  Secondly, 
they  possess  a  great  value  in  a  small  bulk,  which  enables  them 
to  be  kept,  and  to  be  transported  from  place  to  place,  at  little 
comparative  expense.  Thirdly,  their  exchangeable  value,  or  the 
amount  of  other  commodities  w^hich  they  can  purchase,  does 
not  vary  as  rapidly  as  that  of  most  others  (I  am  nov^^  merely 
stating  facts,  without  attempting  to  account  for  them). 
Fourthly,  they  can  always  be  procured  in  the  same  degree  of 
fineness,  or  alloyed  with  exactly  the  same  proportion  of  baser 
metal ;  which,  I  may  remark,  is  done  to  make  them  less  soft 
than  in  their  pure  state,  and  consequently  less  subject  to 
wear.  Fifthly,  they  admit  of  being  divided  into  small  por- 
tions, of  the  same  weight  as  well  as  fineness ;  so  that  pur- 
chases of  all  degrees  of  magnitude  may  be  conveniently  made 
with  them.  Sixthly,  that  weight  and  fineness  can  be  certified 
by  stamping  upon  those  portions  certain  marks  or  figures  not 
easily  effaceable,  or,  in  other  words,  by  coining  them.  The 
more  attentively  any  one  will  compare  the  degree  in  which 
gold  and  silver  possess  these  properties  with  that  in  which 
they  belong  to  all  other  things,  the  more  will  he  be  satisfied  of 
their  pecuhar  adaptation  to  constitute  a  medium  of  exchange. 
The  motives  which  would  lead,  in  the  manner  that  has 
been  explained,  to  the  use  of  the  precious  metals  as  a  medium 
for  exchanging  all  other  commodities,  on  the  hypothesis  of 
society  being  constituted  as  it  is  with  the  exception  of  the 
non-existence  of  such  a  medium,  it  must  be  evident,  cannot 
be  otherwise  than  influential  in  producing  a  like  result  where- 
ever,  and  whensoever,  the  divisions  of  labour  begin  to  be 
introduced.  We  find,  accordingly,  the  fact  to  have  been  so 
in  the  earliest  periods  of  the  history  of  our  race  ;  as  is  authen- 
tically attested  in  the  Scriptures  of  the  Old  Testament.  We 
read,  for  example,  in  the  13th  chapter  of  Genesis,  of  Abra- 
ham, that  he  was  "  rich  in  cattle,  in  silver,  and  in  gold."  And 
again,  in  the  23d  chapter  of  the  same  book,  his  purchase  is 


26  THE    PRINCIPLES    OF 

recorded  of  the  field  of  Machpelah,  as  a  burial  place  for 
Sarah  his  wife,  for  four  hundred  shekels  of  silver,  current 
money  with  the  merchant 

From  what  has  now  been  said  concerning  money,  its  true 
nature,  as  well  as  the  relation  which  it  bears  to  every  other 
portion  of  wealth,  will,  I  hope,  be  sufficiently  understood,  to 
enable  the  reader  to  follow  my  reasonings,  untrammeled  by 
any  preconceived  and  unfounded  notions  with  respect  to  it. 
And  I  shall  therefore  proceed  with  the  business  of  classifica- 
tion and  definition. 


CHAPTER  IV. 

DEFINITIONS  OF  CAPITAL,  OF  THE  WAGES  OF  LABOUR,  AND  OF    THE 

ACCUMULATON  OF  WEALTH IMMATERIAL  AS  WELL  AS   MATERIAL 

PRODUCTS  THE  SUBJECTS  OF  ACCUMULATION. 

Whatever  may  be  the  wealth  of  any  individual,  there  are 
only  two  ways  in  which  he  can  dispose  of  it,  with  a  view  to 
his  own  advantage.  He  may  appropriate  it  either  to  the 
gratification  of  his  present,  or  of  his  future  wants.  In  the 
latter  case,  he  is  said  to  save  a  portion  of  his  wealth.  This 
again  can  be  done,  first,  by  retaining  it  in  his  possession, 
and,  in  the  mean  time,  not  applying  it  to  any  use ;  and 
secondly,  by  employing  it  in  setting  persons  to  work,  who, 
while  they  consume  it,  are  at  the  same  time  engaged  in  pro- 
ducing new  wealth,  or,  in  the  language  of  pohtical  econo- 
mists, are  engaged  in  the  reproduction  of  wealth, — in  the 
reproduction  of  it,  too,  with  a  profit.* 

*  The  lending  to  another  of  a  portion  of  one's  income  is  not  a  mode  of  appro- 
priating it  distinct  from  the  two  which  liavc  been  mentioned ;  for  the  wealth  so 
disposed  of  must  necessarily  be  appropriated  by  the  borrower  in  one  or  other  of 
those  two  modes. 


POLITICAL    ECOXOMT.  27 

There  is  scarcely  any  thing  which,  when  reserved  for 
future  consumption  in  the  first  of  these  two  methods,  does  not 
deteriorate,  and  eventually  perish.  Where  man  thus  forbears 
the  work  of  destruction,  time,  or  rather  the  constant  action 
of  natural  causes,  takes  it  up,  and  sooner  or  later  brings  the 
most  durable  things  to  decay.  Gold  and  silver  are,  for  this 
reason,  almost  the  only  commodities  any  one  ever  thinks  of 
keeping  in  his  possession  for  more  than  a  short  period  of 
time  unemployed.  And  as  almost  the  only  motive  for  doing 
this  (which  every  one  knows  is  denominated  hoarding,)  is  an 
impression  of  the  insecurity  of  property,  very  few  people  will 
have  recourse  to  it  in  a  civilised  community,  where  the  arbi- 
trary will  and  rapacity  of  the  governors,  and  the  Hcense  of 
evil-disposed  individuals,  are  effectually  held  in  check  by  the 
dominion  of  the  laws.  To  save  will  therefore,  in  the  great 
majority  of  instances,  be  identical  with  the  appropriation  of 
wealth  to  the  purpose  of  again  producing  wealth.  When  it  is 
so  appropriated,  it  is  styled  capital;  which  is  hence  a  class 
of  objects  separated  from,  and  comprehended  in,  the  more 
general  class  of  wealth ;  and  just  as,  while  every  portion  of 
wealth  is  possessed  of  utility,  every  thing  useful  does  not  con- 
stitute a  portion  of  wealth,  so  all  capital  is  necessarily  wealth, 
while  much  of  wealth  has  no  claim  to  be  denominated 
capital. 

Before  proceeding  any  farther,  the  reader  should  endeavour 
to  render  himself  famihar  with  the  above  statement  respecting 
the  nature  of  what  is  saved  and  appropriated  as  capital.  He 
should  continually  bear  in  mind  that  it  is  destined  to  be  con- 
sumed equally  with  the  wealth  which  is  not  saved.  The  for- 
mer of  these,  too,  may  be,  and  very  frequently  is,  more  rapidly 
consumed  than  the  latter.  In  illustration  of  this,  compare  the 
food  and  clothing  of  the  labourer,  with  the  mansion,  and 
the  furniture  of  various  kinds,  ornamental  as  well  as  useful, 
with  which  it  has  been  provided,  of  his  employer.  Indeed, 
the  being  saved  or  not  being  saved,  the  being  employed  as 


28  THE    PRINCIPLES    OF 

capital  or  not  being  employed  as  capital,  has  no  relation 
whatever  to  slowness  or  rapidity  of  consumption,  but  simply 
to  the  circumstance  of  the  wealth  in  question  being,  or  not 
being,  appropriated  to  the  reproduction  of  wealth. 

The  only  consistent  meaning  which  the  poHtical  economist 
can  attach  to  the  accumulation  of  wealth  is  its  increase 
through  the  instrumentality  of  increased  savings.  Wealth 
will,  consequently,  accumulate  in  proportion  to  the  rate  at 
which,  at  any  particular  time,  capital  is  accumulating.  Here, 
in  order  to  guard  against  misapprehension,  I  may  remark 
that,  in  different  countries,  and  at  different  periods  in  the  same 
country,  equal  increments  of  wealth  may  not  correspond  with 
equal  increments  of  capital ;  for  capital,  like  labour,  is  not 
always,  and  everywhere,  in  the  same  degree  productive. 

From  what  precedes,  the  reader,  I  hope,  will  distinctly 
perceive  that  immaterial  products,  in  the  same  manner  pre- 
cisely as  material  products,  can  be  saved  and  made  to  consti- 
tute a  portion  of  capital ;  and  that  they  therefore  admit  of 
accumulation  in  the  prep  er  sense  of  this  term.  When  I  pay 
wages  to  any  workman  whom  I  employ,  what  I  really  pay 
him,  that  is  his  real  wages,  will  be  rightly  estimated  by  the 
amount  of  the  various  necessaries  and  luxuries  of  Hfe  which 
I  shall  have  enabled  him  to  obtain.  I  might  have  made  a 
very  different  disposition  of  those  necessaries  and  luxuries  : 
and  they  may  be  truly  said  to  have  constituted  a  portion  of 
my  property  or  wealth.  The  circumstance  that  the  specific 
commodities  disposed  of  by  me  were  never  in  my  immediate 
possession  is  of  no  moment  in  this  respect.  It  suffices  that 
they  were  under  my  control ;  the  evidence  of  which  is  to  be 
found  in  the  power  I  have  exerted  in  causing  their  transfer- 
ence from  one  individual  to  another.  Now  the  real  wages  of 
the  labourer,  as  the  term  has  just  been  explained,  are  in  no 
case  confined  exclusively  to  material  products.  Even  in  the 
most  degraded  communities,  there  is  scarcely  any  one  of  the 
labouring  poor,  who  does  not  consume  occasionally  what  is 


rOLITICAL    ECONOMY.  29 

immaterial.  Of  this  nature,  obviously,  is  the  protection  which 
he  receives  from  the  government  and  law^s  under  which  he 
lives,  and  the  advice  given  by  a  physician  to  his  family  in 
periods  of  sickness.  Other  illustrations,  too,  will  readily  occur 
to  the  reader.  In  so  far  as  he  pays  for  any  such  immaterial 
products  with  the  money  which  I  have  given  him,  will  they 
constitute  a  portion  of  his  wages,  that  is  a  portion  of  my  sav- 
ings or  capital.  And  as  capital,  and  therefore  wealth,  are 
always  accumulated  by  means  of  augmented  savings,  it  is 
manifest  that  immaterial  are,  equally  with  material  products, 
the  subjects  of  accumulation. 

But  it  may  be  said  that  the  impossibility  of  immaterial  pro- 
ducts being  accumulated  is  the  necessary  consequence  of  their 
being  consumed  in  the  act  of  production ;  because  this  circum- 
stance puts  forever  out  of  the  question  the  existence  of  any 
excess  of  production  over  consumption. 

To  this  objection  I  reply,  that  the  amount  of  the  wealth 
which  exists  at  any  time  unconsumed, — and  this  is  unques- 
tionably the  measure  of  the  excess  of  previous  production 
over  consumption, — has  no  fixed  relation  to  the  command 
which  the  community  possesses  over  the  necessaries  and  lux- 
uries of  life,  or,  in  other  words,  to  the  only  purpose  to  which 
the  objectors  themselves  will  admit  the  accumulation  of  wealth 
to  be  subservient.  This  is  manifest  in  respect  to  all  such 
necessaries  or  luxuries  as  are  of  an  immaterial  nature.  But 
the  proposition  can  be  shewn  to  be  equally  true  when  we 
confine  our  view  to  material  wealth.  Just  in  proportion  as 
any  object  is  more  rapidly  consumed,  will  it  yield  a  greater 
gratification  to  its  possessor  in  a  given  portion  of  time, — all 
other  circumstances,  of  course,  remaining  the  same.  If  we 
suppose  the  period  of  its  consumption  to  be  diminished  one- 
half,  the  gratification  derived  from  it  in  a  given  time  must, 
therefore,  be  doubled.  The  whole  amount  of  gratification, 
that  is  of  necessaries  or  luxuries  enjoyed,  will  consequently 
continue  unaltered.      So  likewise  if  the  diminution  of  the 

5 


30  THE    PRINCIPLES    OF 

period  of  consumption  be  in  any  other  ratio.  Any  diminution 
of  tlie  kind,  however,  necessarily  implies  that  the  excess  of 
previous  production  over  consumption  has  become  less  than 
it  was  before.  Hence  the  existence  of  such  excess,  in  any 
degree,  has  no  essential  connexion  with  human  happiness, 
and  ought  not  to  constitute  a  criterion  of  the  existence 
of  wealth.  Besides,  whoever  adopts  this  criterion  cannot,  in 
my  opinion,  without  inconsistency  avoid  regarding  the  dura- 
bility of  an  object,  irrespective  of  any  other  consideration,  as 
a  measure  of  the  wealth  which  is  embodied  in  it,  or  with 
which  it  is  identical ;  so  that,  for  example,  a  certain  quantity 
of  hardware,  instead  of  constituting  only  an  equal  portion 
of  wealth  with  corn  of  the  same  exchangeable  value,  ought 
to  be  estimated,  merely  because  it  is  in  its  nature  more  dura- 
ble, as  of  greater  amount  than  the  latter, — an  estimate  which 
few  or  none  will  hesitate  to  reject  at  once,  as  an  absurdity. 

I  have  said  that  by  the  accumulation  of  wealth  is  meant  its 
increase  through  the  instrumentality  of  increased  savings,  or 
of  an  increase  in  the  capital  of  the  community.  This  account 
of  the  nature  of  accumulation  implies,  it  may  not  be  super- 
fluous to  add  here,  although  perhaps  sufficiently  obvious 
from  what  has  been  above-mentioned,  that,  when  wealth  is 
accumulated,  a  greater  amount  of  it  is  consumed,  as  well  as 
produced,  in  a  given  time ;  for  if  such  were  not  the  case, 
there  would  be  no  augmentation  whatever  of  the  advantages 
derived  from  wealth ;  and  its  augmented  production  would 
be  a  piece  of  pure  folly. 

That  the  amount  of  accumulated  wealth  is  not  to  be 
measured  by  the  excess  of  previous  production  over  consump- 
tion, but  by  the  amount  of  wealth  which  is  produced  and 
consumed  in  a  given  time, — and  that  immaterial  products  are 
susceptible  of  accumulation  in  the  very  same  manner  as 
material  ones, — are  propositions  which  I  have  taken  some 
pains  to  establish,  and  to  impress  upon  the  reader's  mind. 
And  I  have  done  so,  both  on  account  of  their  novelty,  and  of 


POLITICAL    ECONOMY.  31 

their  importance,  as  I  think,  to  a  comprehensive  and  fully 
satisfactory  view  of  the  science  of  political  economy.  One 
or  two  writers  may  have  had  occasionally  a  glimpse  of  the 
latter ;  yet  none,  so  far  as  I  know,  even  of  those  who  have 
appHed  the  term  wealth  to  immaterial  as  well  as  to  mate- 
rial products,  have  sufficiently  realised  the  possibility  of 
immaterial  products  being  accumulated,  to  induce  them  to 
embrace  these  under  the  denomination  of  capital ;  without 
doing  which,  the  extension  of  the  definition  of  icealth  will  be 
found  to  be  merely  a  barren  generality.  The  former  of  the 
two  propositions  I  believe  to  be  so  entirely  new,  that  it  would 
be  impracticable  to  point  out  a  passage  in  the  writings  of  any 
political  economist,  indicative  of  the  remotest  suspicion  on  his 
part  of  its  truth.  These  propositions  are  intimately  related  to 
each  other ;  since,  as  must  be  evident,  if  the  excess  of  pre- 
vious production  over  consumption  is  a  correct  measure  of 
the  wealth  accumulated,  to  predicate  accumulation  in  respect 
to  that  which  is  consumed  in  the  very  act  of  being  produced, 
— that  is  of  immaterial  products, — would  be  a  direct  contra- 
diction. In  what  degree,  if  in  any,  the  possibility  of  such 
accumulation  is  important,  the  reader  will  be  able  to  decide 
for  himself  in  the  seqiiel* 

*  The  possibility  of  accumulating  immaterial  products,  and  of  their  constituting 
a  portion  of  capital,  seem  to  me  to  be  points  of  so  much  importance  to  a  compre- 
hensive and  adequate  view  of  the  science  of  political  economy,  that  I  may  be 
permitted  in  this  note  to  restate  the  argument  of  the  text  in  a  concise  form. 

No  other  test  of  the  increase  of  wealth  can  possibly  exist,  whether  it  be  mate- 
rial or  immaterial,  than  that  a  greater  quantity  of  it  is  produced  and  consumed 
in  a  given  time  than  before.  But  since  nothing  more  is  intended  by  the  accumu- 
lation of  weailih  tha.n  the  increase  of  it,  it  will  manifestly  be  proper  to  speak  .of  the 
accumulation  of  immaterial  products. 

Again,  what  is  saved  and  appropriated  as  capital  is  not  of  necessity  consumed 
Blower  than  any  other  portion  of  wealth ;  it  is  merely  consumed  by  a  different 
class  of  persons.  We  have  here  therefore  no  reason  why  capital  should  not  be 
composed,  like  that  portion  of  wealth  which  is  not  capital,  in  part  of  the  products 
which  are  immaterial,  as  well  as  of  those  which  are  material.  And  as,  in  almost 
every  instance,  the  real  wages  of  the  labourer, — wMch  wages,  when  advanced  to 


32  THK  PRINCIPLES    OF 


CHAPTER  V. 

CONSTITUENT    ELEMENTS   OF    CAPITAL PRODUCTIVE    AND    UNPRO- 
DUCTIVE   CONSUMPTION DISTINCTION    OF    CAPITAL    INTO    FIXED 

AND  CIRCULATING. 

Capital  consists,  first,  of  the  wages  of  labour.*  Secondly, 
of  those  instruments  and  constructions  of  all  kinds  which 
assist  the  labourer  in  the  production  of  v*^ealth.  Thirdly,  of 
the  materials,  in  different  stages  of  preparation,  on  which  his 
labour  is  exerted.  Fourthly,  of  that  amount  of  the  finished 
commodity  which  it  may  be  thought  expedient  by  the  owner 
of  capital,  or  capitalist,  as  he  is  called,  to  keep  on  hand 
before  selling  it.  And  lastly,  of  the  money  appropriated  to 
the  circulation  of  the  various  other  constituent  portions  of 
capital. 

The  wages  of  labour  might  seem,  at  first  view,  to  comprise 
a  part  at  least  of  the  money  mentioned  under  the  last  head,  on 

him  by  his  employer,  are  a  portion  of  the  latter's  capital, — consist,  in  a  certain 
degree,  of  immaterial  products,  it  will  follow  that  immaterial  products  may  be 
made  to  constitute  a  portion  of  capital. 

Perhaps,  too,  the  analogy  which  has  been  pointed  out  between  material 
and  immaterial  products  will  be  more  clearly  apprehended  by  the  reader,  if  he 
analyse  the  mode  in  which  the  former  of  these  administers  to  the  gratification  of 
our  desires,  and  compare  it  with  that  in  which  we  derive  gratification  from  the 
latter.  He  will  not  be  surprised  at  the  closeness  of  the  analogy  in  question, 
when  he  perceives,  as  he  will  not  fail  to  perceive,  that,  in  both  cases  alike,  the 
ultimate  product  is  simply — agreeable  sensations.  The  entire  utility  of  the  house 
in  which  we  dwell,  for  example,  arises  from  its  adaptation  to  produce  a  series  of 
such  sensations  in  our  minds,  just  as  the  products  of  the  painter  or  the  musi- 
cian are  adapted  to  do. 

*  If  any  portion  of  the  labourer's  wages  be  not  advanced  to  him  by  his 
(employer,  but  bcrcceived  by  him  only  after  the  process  of  production  is  completed, 
he  will  then  receive,  besides  his  wages,  profits  upon  them  for  the  time  their  pay- 
ment has  been  postponed ;  in  other  words,  he  may  himself  be  regarded  as  a  capital- 
ist, whose  capital  has  been  invested  together  with  that  of  his  employer. 


POLITICAL  ECONOMY.  33 

account  of  those  wages  being  ordinarily  paid  in  money.  This 
is,  however,  not  the  case.  We  must  be  careful  not  to  con- 
found the  real  wages  of  the  labourer  with  his  money  wages. 
The  latter,  as  has  been  before  stated,  are  only  instrumental 
in  procuring  the  former.  The  labourer,  who  receives  money 
for  his  services,  exchanges  it  again  for  the  necessaries  and 
comforts  of  Hfe,  both  of  a  material  and  immaterial  nature, 
which  he  is  enabled  by  means  of  it  to  obtain ;  and  the  money 
is  only  transitorily  in  his  possession. 

With  respect  to  the  last  of  the  subdivisions  of  capital  which 
I  have  mentioned,  it  may  very  possibly  be  objected,  that  it  is 
not  of  a  sufficiently  distinctive  character ;  because  the  very 
same  money  that  is  employed  to  circulate  the  constituent 
portions  of  capital  is  also  the  medium  for  exchanging  every 
thing  else.  This  is  a  circumstance,  nevertheless,  of  no  impor- 
tance ;  for  it  is  undeniable  that  a  certain  proportion  of  the 
exchanges  made,  and,  of  course,  of  the  money  employed  in 
making  them,  has  a  relation  to  capital ;  and  it  is  this  propor- 
tion, or  amount,  of  money,  which  is  meant  to  be  classed 
under  that  denomination.  It  may  also,  perhaps,  seem  singular 
to  some  of  my  readers,  that  only  a  portion  of  the  circulating 
medium  should  be  styled  capital.  The  singularity  arises  from 
the  fact  that  large  sums  of  money  are  commonly  so  desig- 
nated, in  consequence  of  this  being  the  form  in  which  the 
capitalist  usually  realises  his  property  before  he  makes  his 
investments,  and  from  the  capacity,  and  consequent  liability, 
of  all  money  to  be  employed  with  a  view  to  reproduction. 
But  in  as  much  as  the  progress  of  an  individual  or  nation  in 
wealth  is  dependent,  not  on  the  amount  of  his  property  that 
is  Hable  to  be  employed  as  capital,  but  on  what  is  actually  so 
employed,  we  want  a  term  for  the  latter,  and  not  for  the 
former.  Now  capital  is  the  term  that  has  been  selected  for 
this  purpose ;  and  there  can  be  no  reasonable  objection  to  it, 
until  a  better  shall  be  offered  as  a  substitute. 

It   might,  possibly,  be    made  a   question   whether  "that 


34  THE  PRINCIPLES  OP 

amount  of  the  finished  commodity  which  it  may  be  expedient 
for  the  capitaUst  to  keep  on  hand  before  seUing  it"  is  with 
propriety  styled  capital.  That  it  is  so  styled  in  the  actual 
business  of  life,  must  be  notorious  to  every  one.  Such,  for 
instance,  is,  to  a  very  considerable  extent,  the  capital  of  the 
merchant.  In  every  case,  too,  where  we  speak  of  the  profits 
of  capital,  we  mean,  not  only  the  profits  on  the  wealth  which 
is  alone  apparently  employed  in  production,  but  likewise  on 
all  that  portion  of  it  which  is  thus  kept  on  hand.  And  as  both 
these  portions  do,  in  reality,  always  yield  profits  in  proportion 
to  the  amount  of  each,  may  they  not  be  said  to  be  equally 
productive,  and  to  be  equally  entitled  to  have  the  term  capital 
applied  to  them  ?  Farther  light  will,  however,  be  shed  upon 
this  point,  when  I  shall  have  treated  of  the  determination  of 
the  prices  of  commodities  by  the  cost  of  producing  them. 

Whatever  is  consumed  as  capital  is  said  to  be  productively 
consumed ;  and  what  is  otherwise  consumed  is  said  to  be 
unproductively  consumed.  Thus  the  wages  of  the  labourers 
whom  I  employ  are  a  part  of  my  productive  consumption. 
On  the  other  hand,  my  own  food  and  clothing  belong  to  my 
unproductive  consumption. 

A  labourer  may  dispose  of  his  wages,  just  as  his  employer 
may  do  of  his  wealth,  in  two  different  ways.  He  may  make 
an  immediate  appropriation  of  them  for  the  supply  of  his 
wants,  or  he  may  save  and  employ  them  as  capital :  in  other 
words,  he  may  consume  them  either  unproductively  or  pro- 
ductively. Hence  it  follows,  that  the  same  wealth  which 
constitutes  the  productive  consumption  of  the  employer  of 
labour,  may  constitute  also  the  productive  or  unproductive 
consumption  of  the  labourer. 

Capital  is  either j^xec?  or  circulating.  Fixed  and  circulating 
are  here  relative  terms ;  by  fixed  capital  being  meant  that 
capital  which  is  less  rapidly,  and  by  circulating  capital  that 
which  is  more  rapidly  consumed.  When  we  have  reference 
to  the  capital  employed  in  the  same  branch  of  industry,  it  is 


POLITICAL  ECONOMY.  35 

customary  to  designate  those  specific  portions  of  it  which  are 
wholly  consumed  in  the  act  of  production  as  circulating, 
and  those  portions  which  only  suffer  wear  and  tear  as  fixed 
capital.  The  fixed  capital  in  one  employment  may,  conse- 
quently, be  consumed  more  rapidly  than  the  circulating  is  in 
another. 


CHAPTER  VI. 

DISTINCTIOPf    BETWEEN    THE  LABOUR  WHICH    IS  PRODUCTIVE    AND 

THAT    WHICH    IS    UNPRODUCTIVE WHY    IT    MAY    BE    DISPENSED 

WITH. 

The  writers  on  political  economy  who  restrict  wealth  to 
matter  are  very  naturally  led  to  lay  much  stress  on  the  dis- 
tinction of  labour,  as  productive  and  unproductive.  According 
to  them,  the  labour  applied  to  the  production  of  material 
commodities  is  alone  productive ;  that  which  is  applied  to  the 
production  of  immaterial  commodities  being  regarded  as 
unproductive.  All  persons  engaged  in  agriculture,  manufac- 
tures, or  commerce,  are  therefore  'productive  lahourei's  ;  and 
magistrates,  lawyers,  physicians,  teachers,  poets,  philosophers, 
clergymen, — as  also  players,  opera-dancers,  jugglers,  and 
mountebanks, — are  unproductive  labourers. 

It  is  not  denied  that  an  unproductive  may  often  have  a  far 
greater  influence  in  advancing  the  wealth  of  a  country  than  a 
productive  labourer;  that  the  labours  of  a  Watt  or  a  Fulton, 
for  instance,  were  in  this  respect  equivalent  to  those  of  many 
thousands  who  have  owed  to  them  the  very  existence  of  their 
several  occupations.  Notwithstanding  this,  however,  the 
consistency  of  the  distinction  in  question  is  maintained  on  the 
ground    of   the  one   class    of  labourers  being  engaged   in 


86  THE  PRINCIPLES  OF 

directly  producing  wealth,  while  the  other  class  are  only 
indirectly  instrumental  in  its  production, — a  ground  which  is, 
without  doubt,  perfectly  tenable,  if  immaterial  products  be 
excluded  from  the  definition  of  wealth. 

If  now  we  suppose  the  relation  of  capital  to  wealth  to  be 
the  same  as  that  which  I  have  stated  in  the  preceding  pages, 
it  will  be  the  productive  labourers  alone  who  are  employed  by 
capital;  and,  in  order  to  determine  whether  any  individual 
be  a  productive  or  unproductive  labourer,  we  need  only 
inquire  whether  he  be,  or  be  not,  employed  by  capital. 

But  the  political  economists,  on  whose  views  I  am  now 
remarking,  do  not  invariably  regard  as  capital  the  wealth 
which  is  appropriated  "  to  the  purpose  of  again  producing 
wealth."  When,  under  any  circumstances,  the  wealth  pro- 
duced is  altogether  unproductively  consumed,  it  is  obvious 
that  no  permanent  addition  is  made  to  the  wealth  of  the  com- 
munity. It  follows  that  if  we  class  the  producers  of  the  wealth 
thus  consumed  with  the  unproductive  labourers,  and  therefore 
refuse  to  denominate  the  wealth  by  which  they  are  employed 
capital,  no  errour  will  ensue  in  reference  to  the  progress  of 
national  wealth ;  and  it  is  in  reference  to  this  progress  alone, 
that  the  distinction  under  consideration  will  be  asserted  by 
any  one  to  be  of  any  the  least  consequence.  Although  menial 
servants  are  in  many  cases  occupied  in  adding  utility  to 
matter,  the  writers  of  whom  I  am  speaking  style  them  unpro- 
ductive. No  one  who  employs  them  does  so  with  the  object 
in  view  of  becoming  thereby  richer :  all  that  they  produce  is 
unproductively  consumed ;  and  their  wages  constitute,  on  this 
account,  no  portion  of  their  employer's  capital.* 

So  long  as  wealth  is  restricted  in  its  signification  to  matter, 

*  That  no  one  who  employs  menial  servants  does  so  with  the  object  in  view  of 
becoming  thereby  richer,  is  a  remark  only  generally  true.  A  cook,  for  example, 
in  a  public  hotel,  is  directly  engaged  in  adding  to  his  employer's  wealth.  Accord- 
ing, therefore,  to  those  political  economists  who  adopt  the  distinction  now  under 
consideration,  he  must  in  this  case  be  ranked  with  the  productive  labourers. 


POLITICAL  ECONOMV.  37 

the  distinction  wliich  has  just  been  explained,  between  pro- 
ductive and  unproductive  labour  (to  repeat  what  I  have 
already  said)  will  be  found  to  be  always  perfectly  consistent 
with  itself; — the  numerous  instances  of  apparent  inconsis- 
tency that  have  been  charged  upon  it,  by  different  writers,  being 
all  of  them  founded  on  a  misapprehension  of  the  meaning 
attached  to  it  by  those  who  have  adopted  it.  Its  expediency 
is,  however,  a  very  different  question.  This  depends  entirely 
on  the  manner  in  which  wealth  and  capital  have  been  previously 
defined.  If  these  terms  have  been  applied  exclusively  to 
material  objects,  and  if  they  have  been  so  applied  on  account 
of  the  peculiar  importance  of  such  objects  in  their  relation  to 
the  science  of  political  economy,  it  will  certainly  become 
equally  important  to  distinguish  carefully  between  the  producers 
of  wealth,  and  all  those  who  are  engaged  in  producing  what, 
however  useful  it  may  be,  is  not  wealth.  On  the  other  hand, 
if  wealth  and  capital  are  made  to  comprehend  as  well  imma- 
terial objects  as  material  ones,  every  species  of  labour  which 
is  productive  of  utility,  whether  this  utility  be  first,  so  to 
speak,  embodied  in  matter,  or  not,  will  be  productive,  and 
the  distinction  in  question  will  be  made  to  disappear  altogether. 
There  will,  at  least,  be  no  unproductive  labour  excepting  when 
more  labour  than  is  necessary  is  employed  to  produce  a  par- 
ticular commodity,  or  when  more  of  it  is  produced  than  is 
required  by  the  comparative  wants  of  the  community.  I  may 
remark  that,  when  this  is  the  case,  while  a  certain  portion  of 
the  labour  employed  is  unproductive,  every  labourer  will, 
nevertheless,  be  productive  in  a  certain  degree ;  for  if  he  be  in 
no  degree  productive,  he  will  scarcely  have  any  claim  to  the 
designation  of  a  labourer. 

Care  must  be  had  not  to  connect  together  too  closely  the 
distinctions  of  productive  and  unproductive  labour,  and  of 
productive  and  unproductive  consumption,  so  as  to  suppose 
that  the  rejection  of  the  former  will  necessarily  lead  to 
the  rejection   also  of   the  latter.      This,  on  the  contrary, 

6 


38  THE  PRINCIPLES  OP 

being  identical  with  the  distinction  between  the  wealth 
which  is  appropriated  as  capital  and  the  wealth  which  is  not 
so  appropriated,  will  have  its  importance  in  no  wise  dimin- 
ished. 

Now  if  labour  of  every  kind  is  productive,  the  labour  of 
menial  servants  is  productive.  They  are  therefore  employed 
by  capital ;  or,  in  other  words,  their  wages  constitute  a 
portion  of  their  employer's  capital.  But  to  express  ourselves 
thus  is,  it  may  be  said,  to  set  at  defiance  the  estabUshed  usage 
of  language.  Not  more  so,  however,  than  those  writers  do 
who  distinguish  labour  into  productive  and  unproductive. 
The  mode  in  which  they  contrive  to  render  their  use  of  the 
word  capital  consistent  with  ordinary  usage  has  been  already 
stated ;  and,  by  refusing  to  make  any  distinction,  in  respect 
to  productiveness,  between  the  different  kinds  of  labour,  I  am 
not  at  all  hindered  from  proceeding,  if  I  so  choose,  in  the  same 
manner.  On  account  of  the  whole  of  what  menial  servants 
produce,  whether  it  be  material  or  immaterial,  being  con- 
sumed unproductively,  their  wages  may  be  omitted  from 
among  the  constituent  portions  of  capital,  without  affecting  in 
the  least  the  correctness  of  our  conclusions  concerning  the 
progress  of  the  capitalist  or  nation  in  wealth,  or  even  the 
phraseology  in  which  those  conclusions  are  expressed.  The 
reader  may  therefore  if  he  pleases,  understand  me,  in  what  is 
to  follow,  as  making  this  slight  modification  of  my  definition 
of  capital. 

It  may  here  be  mentioned  that  a  practical  and  moral 
advantage  cannot  fail  to  result  from  getting  rid  of  the  distinc- 
tion between  the  productive  and  unproductive  labourers. 
Mankind,  instead  of  being  separated  into  two  classes  having 
occupations  essentially  differing,  and  liable  on  this  account  to 
an  interference  with  each  other's  interests,  will  come  to  be 
regarded  as  constituting  one  and  the  same  great  family. 
The  political  economist,  by  continually  associating  together 
in  his  investigations  every  species  of  manual  or  bodily  labour 


POLITICAL  ECONOMY.  39 

with  that  of  the  most  refined  and  exalted  intellect,  cannot 
fail  to  dignify  the  former  in  his  estimation ;  while  he  will,  on 
the  other  hand,  contribute  most  effectually  to  remove  from 
intellectual  labour  the  stigma  which  is  ordinarily  implied  by 
designating  it  as  unproductive.  If  he  shall  succeed  in  banish- 
ing from  the  popular  language  such  phrases  as  "the  productive 
classes"  and  "  the  unproductive  classes,"  he  will  have  done 
more  to  prevent  the  "  workmen"  of  a  country  from  esteeming 
themselves  to  be  the  only  useful  portion  of  society,  than  he 
could  possibly  do  by  reminding  his  readers,  every  time  he 
writes  the  word  unproductive,  that  his  object  in  applying  it 
to  any  individual  is  not  to  pronounce  him  to  be  unproductive 
of  utility,  but  of  material  objects  having  utility, — not  to 
pronounce  him  to  be  a  mere  consumer  of  the  products  of  the 
labour  of  others,  but  simply  to  be  not  employed  by  capital, 
although  perhaps  employed  in  continually  conferring,  the  most 
extensive  benefits  on  his  fellow-men.  The  definitions  of 
technical  terms,  which  do  not  accord  with  their  popular 
acceptation,  are  very  apt  to  be  forgotten  even  by  those  who 
have  paid  some  attention  to  the  science  to  which  those  terms 
relate ;  and  hence  it  is  no  uncommon  thing  to  see  the  popular 
acceptation  usurp  the  place  of  the  technical,  even  in  profess- 
edly scientific  treatises. 

Here  I  shall  suspend,  for  the  present,  my  remarks  on 
capital  and  its  relations,  and  shall  likewise  bring  to  a  close 
the  business  of  mere  classification  and  definition. 


40  THE  PRINCIPLES  OP 


CHAPTER  VII. 

INFLUENCE  OF  SUPPLY  AND  DEMAND  IN  DETERMINING  THE 
EXCHANGEABLE  VALUE  OF  A  COMMODITY. 

I  HAVE  already  mentioned  the  fact  of  every  species  of 
wealth  being  the  subject  of  frequent  exchanges,  and  that  the 
exchangeable  value  of  a  commodity  might  be  regarded  as  a 
criterion  of  the  existence  of  wealth.  One  of  the  topics, 
therefore,  which  naturally  present  themselves  early  for 
inquiry  to  the  political  economist  is, — what  the  circumstances 
are  that  determined  the  degree  of  the  exchangeable  value  of 
different  commodities,  or  why  the  exchangeable  value  of 
any  thing  is  just  what  it  is,  and  no  other.  I  proceed  to  the 
discussion  of  this  topic. 

Of  the  three  conditions  on  which  the  existence  of  exchange- 
able value  was  stated  to  depend,  the  capacity  of  being 
appropriated  is  of  an  absolute  and  invariable  character,  whilst 
the  other  two,  viz.  the  possession  of  utility,  and  a  limited 
supply,  admit  of  coexisting  in  all  possible  degrees ;  and  the 
relation  which  these  bear  to  each  other,  in  reference  to  any 
two  commodities,  must  consequently  determine  the  degree  of 
their  exchangeable  values,  when  they  are  compared  together. 
Now,  other  circumstances  remaining  the  same,  in  proportion 
to  the  utility  of  any  object  will  be  the  desire  to  obtain  it,  and 
more  of  other  things  will  be  offered  in  exchange  for  it. 
Exchangeable  value  may,  therefore,  be  regarded  as  determined, 
in  every  instance,  by  the  relation  which  the  supply  of  a  com- 
modity has  to  the  demand  for  it. 

Before,  however,  attempting  to  trace  the  manner  in  which 
this  determination  takes  place,  it  is  important  to  render  the 
ideas  attached  to  the  terms  supply  and  demand  as  distinct  as 
possible,  and  to  clear  them  of  such  ambiguities  as  might  lead 
to  errour  or  obscurity  in  our  reasonings.     I  shall  likewise 


POLITICAL  ECONOMY.  41 

premise  that,  since  commodities  are  for  the  most  part 
exchanged  for  money,  the  attention  of  the  reader  will  be 
directed,  in  the  first  place,  to  the  laws  which  regulate  their 
•prices ;  when  it  will  be  easy  to  infer  those  which  apply  to 
every  case  of  exchangeable  value. 

By  the  supply  of  a  commodity  is  to  be  understood  the 
quantity  of  it  which  comes  into  the  possession  of  the  sellers, 
and  is  offered  by  them  for  sale,  during  a  given  portion  of 
time ;  and  we  must  carefully  distinguish,  in  the  case  of 
material  commodities,  between  the  supply  of  a  commodity  as 
thus  defined,  and  that  amount  or  stock  of  it  which  the  sellers 
may  think  it  for  their  advantage  to  keep  on  hand,  in  order  to 
attract  purchasers  to  their  respective  stores  or  warehouses, — 
by  ensuring  to  them  the  opportunity  of  at  all  times  procuring, 
on  application,  whatever  they  may  stand  in  need  of,  or  by 
presenting  for  their  selection  a  larger  assortment  of  goods. 
The  stock  on  hand  among  the  sellers,  and  which  they  offer 
for  sale,  so  far  from  having  any  direct  proportion  to  the 
supply,  is  generally  less  as  the  latter  is  augmented,  and 
greater  as  that  is  diminished ;  for  it  is  plain  that  every  seller  will 
be  more  disposed  to  keep  on  hand  a  commodity,  according  as 
he  has  a  less  expectation  of  being  shortly  supplied  with  it,  and 
so  vice  versa  ;  and  nothing  is  easier  than  for  the  sellers  to 
augment  or  diminish  the  stock  on  hand,  in  the  one  case  by 
the  raising,  and  in  the  other  by  the  lowering,  of  prices. 

By  demand  is  not  meant  to  be  implied  simply  the  desire 
of  possessing.  To  this  scarcely  any  limits  can  be  assigned. 
Every  one  acquainted  with  the  use  of  a  commodity  has 
necessarily  the  desire  to  possess  it.  But  the  desire  to  possess 
it,  unless  accompanied  by  an  offer  of  money,  or  something 
else,  in  exchange  for  it,  can  obviously  produce  no  effect 
whatever  on  its  exchangeable  value;  because  such  a  desire 
can  in  no  way  influence  the  sellers  to  part  with  it  more  or 
less  readily.  The  demand  with  which  we  are  concerned  is 
to  be  estimated  by  the  number  of  offers  to  purchase  made  in  a 


42  THE  PRINCIPLES  OP 

given  time,  at  any  given  rate  :  and  where  more  offers  are  made 
to  purchase  a  commodity  at  its  existing  price  than  before,  the 
demand  is  said  to  have  increased ;  while  the  contrary  will 
take  place,  when  the  number  of  similar  offers  is  diminished. 

Let  us  now  examine  in  succession  the  different  modes  in 
which  variations  in  the  relation  between  the  supply  of,  and  the 
demand  for,  commodities  can  influence  their  prices.  And  let 
our  examination,  in  the  first  instance,  have  reference  to 
material  commodities. 

1.  The  demand  for  a  commodity  remaining  the  same,  let 
the  supply  become  more  abundant.  If  then  its  price  were  not 
to  rise,  the  stock  on  the  hands  of  the  sellers  would  accumulate, 
without  producing  any  counterbalancing  advantage.  It 
would  be  so  much  dead  and  unprofitable  capital.  To  avoid 
such  a  state  of  things,  and  dispose  of  the  additional  supply, 
there  is  no  other  remedy  for  the  sellers  to  have  recourse  to, 
but  to  lower  the  price  of  the  commodity.  Many  of  those 
persons  who  were  purchasers  before,  will  now  purchase  in 
larger  quantity ;  and  some,  who  were  willing,  rather  than 
pay  its  former  price,  to  dispense  altogether  with  the  article 
in  question,  will  now  become  purchasers.  Its  price  will  only 
cease  to  fall,  when  the  quantity  disposed  of  is  just  equal  to  the 
supply. 

2.  If  we  now  suppose  the  supply  of  a  commodity  to  be 
diminished,  while,  as  under  the  preceding  supposition,  the 
demand  continues  the  same,  it  is  clear  that  the  interest  of  the 
sellers  will  prompt  them  to  raise  its  price,  until,  in  conse- 
quence of  the  corresponding  diminution  of  the  amount  of  sales, 
the  quantity  disposed  of  will  not  exceed,  but  be  just  equal  to 
the  diminished  supply. 

3.  The  supply  remaining  the  same,  let  the  demand  be 
increased.  Let  the  persons  who  before  purchased  a  certain 
article  now  purchase  a  greater  quantity  of  it ;  and  let  others 
who  before  did  not  purchase  it  at  all  now  become  purchasers. 
We  can  suppose  such  an  increase  of  demand  to  arise,  either 


POLITICAL  ECONOMY.  43 

from  a  change  in  the  fashion  of  the  day,  or  from  some  new 
use  to  which  the  article  in  question  is  capable  of  being 
applied.  But  whatever  the  occasion  of  it  may  be,  the  sellers 
will  be  induced  to  raise  prices  ;  for  by  so  doing,  while  they 
make  greater  profits,  they  can  at  the  same  time  dispose  of  the 
whole  supply. 

4.  A  diminution  of  demand  will,  it  must  be  obvious,  pro- 
duce effects  directly  opposite  to  those  resulting  from  an 
increase  of  demand.  The  sellers  will  lower  prices,  until  the 
purchases  made  shall  be  sufficient  in  amount  to  take  off  the 
supply. 

5.  The  prices  of  things  are  affected,  not  only  by  actual 
variations  in  the  rates  of  supply  and  demand,  but  likewise  by 
every  expectation  of  the  occurrence  of  such  variations  at  ft. 
future  time.  An  expectation  of  an  extraordinary  future 
supply  will  operate  to  lower  present  prices  in  a  two-fold 
manner ;  by  directly  influencing  the  minds  of  the  sellers, — 
and  by  its  influence  on  the  sellers,  through  its  operation  on  the 
minds  of  the  buyers.  First,  the  sellers,  aware  that  the 
expected  increase  of  supply,  when  it  shall  have  actually 
occurred,  will  have  the  effect  of  lowering  prices,  will  be 
anxious  to  make  a  greater  number  of  present  sales,  and  to 
diminish  the  stock  they  have  on  hand  ;  for  which  reason  they 
will  at  once  sell  cheaper.  But,  secondly,  the  buyers  equally 
aware  with  the  sellers  of  the  expected  increase  of  supply, 
will  be  induced  to  postpone  their  purchases  to  a  certain 
extent.  In  other  words,  they  wfll  make  a  less  present 
demand.  And  in  this  way  too,  it  will  be  apparent  from  what 
has  been  said  already,  the  sellers  will  be  led  to  reduce  their 
prices. 

6.  An  expected  diminution  of  supply  must,  of  course, 
produce  the  opposite  effect.  The  sellers  will  be  disposed  to 
raise  prices,  that  they  may  reserve  a  larger  stock  of  goods ; 
and  the  buyers  will  make  a  greater  present  demand ;  which. 


44  THE  PEINCIPLES  OF 

again,  will  be  an  additional  inducement  to  the  sellers  to  sell 
dearer. 

7.  An  expected  increase  of  demand  will  be  a  motive  to  the 
sellers  at  once  to  raise  prices,  thereby  to  retain  a  greater 
stock  of  goods  on  hand ;  and  it  will  have  a  tendency  to 
multiply  the  present  number  of  buyers,  and,  in  this  way  like- 
wise, to  raise  prices. 

8.  An  expected  diminution  of  demand  will  have  the 
contrary  effect  of  lowering  prices.  The  sellers  will  have  a 
motive  to  diminish  the  stock  they  have  at  present  on  hand ; 
while,  in  expectation  of  a  fall  of  prices,  the  buyers  will  be 
inclined  to  postpone  their  purchases,  and  will  thus,  by  making  a 
less  present  demand,  offer  an  additional  motive  to  the  sellers 
t€>  dispose  of  their  commodities  at  a  lower  rate. 

It  is  scarcely  necessary  to  remark  that  more  than  one  of 
the  causes  which  have  been  mentioned,  of  the  variation  of  the 
prices  of  commodities,  may  be  operative  at  the  same  time ; 
when,  of  course,  the  effect  actually  produced  will  be  compli- 
cated of  the  effects  which  they  are  calculated  to  produce  if 
they  act  separately ;  and  it  is  obviously  very  possible,  that 
the  causes  in  operation  to  vary  prices  might  so  neutralise 
each  other's  action,  as  to  retain  those  prices  at  nearly  an 
uniform  rate. 

Every  expected  future  change  in  the  rate  of  the  supply  or 
demand  will  have  an  influence  on  present  prices,  so  much 
the  less  in  proportion  to  the  remoteness  of  the  expectation. 
The  truth  of  this  cannot  but  be  apparent  from  what  has  been 
stated. 

The  degree,  too,  of  that  influence  will  depend,  in  some 
measure,  on  the  nature  of  the  commodity,  in  relation  to  which 
the  increase  or  diminution  of  supply  or  demand  is  expected. 
For  example,  if  an  article  be  of  a  perishable  nature,  an  expect- 
ed future  diminution  of  supply  or  increase  of  demand,  cannot 
be  as  strong  an  inducement  to  the  sellers  to  raise  its  price, 
and  to  keep  a  large  quantity  of  it  on  hand,  as  if  it  were  more 


POLITICAL  ECONOMY.  45 

durable.  An  expectation  of  a  diminished  supply  of  oranges, 
three  months  hence,  would  produce  little  or  no  impression  on 
their  present  prices ;  the  fruiterers  must,  at  all  events,  sell 
the  whole  of  their  stock  within  a  time  less  than  that  specified, 
or  consent  to  suffer  a  total  loss  by  the  perishing  of  the  oranges. 
On  the  other  hand,  an  expected  diminution,  at  the  end  of  the 
three  months,  in  the  supply  of  hardware  or  corn,  which  can 
be  stored  in  the  mean  while  without  loss,  would  have  a 
marked  effect  on  the  price  of  the  article.  Again,  the  willing- 
ness, or  power,  of  any  individual  to  postpone  his  purchases, 
will  depend  on  the  degree  in  which  he  stands  in  need  of  what 
is  proposed  to  be  purchased.  If  it  be  to  him  a  necessary  of 
life,  he  must  procure  it  immediately ;  but  if  it  be  a  mere 
luxury,  he  may  contrive  to  do  without  it.  Now  if  there  exist 
an  expectation  of  an  increased  supply  of,  or  a  diminished 
demand  for  it  at  a  future  day,  it  has  been  shewn  that  its  price 
will  fall  partly  in  consequence  of  the  diminution  of  present 
demand ;  which  diminution,  being  itself  the  result  of  the  dispo- 
sition of  the  buyers  to  postpone  purchasing,  it  follows  that, 
according  as  an  article  is  less  an  object  of  necessity,  and  more 
an  object  of  luxury,  its  price  will  be  affected  by  the  expectation 
of  an  extraordinary  supply,  or  of  a  decrease  of  demand,  at  a 
future  day. 


46  THE  PRINCIPLES  OF 


CHAPTER  VIII. 

THE  SAME  SUBJECT  CONTINUED. 

In  prosecuting  the  inquiry  into  the  circumstances,  or  causes, 
which  occasion  a  variation  in  the  prices  of  commodities,  it  has 
been  impHedly  supposed,  that  the  money  for  which  they  are 
exchanged  is  in  no  respect  whatever  subjected  to  change.  But 
money  is  itself  a  commodity,  and  therefore  Hable  to  the  same 
changes  in  respect  to  supply  and  demand  as  all  others.  And 
in  comparing  it  with  any  other  which  is  supposed  to  undergo 
no  changes  of  the  kind,  it  must  be  obvious  that  we  may 
reason  concerning  its  exchangeable  value,  just  as  we  did  con- 
cerning prices.  An  alteration  of  the  exchangeable  value  of 
money  is,  however,  identical  with  an  alteration  in  the  price  of 
the  article  with  which  it  is  compared.  Hence  the  price  of 
commodities  will  vary,  not  only  on  account  of  a  change, 
present  or  expected,  in  the  rate  of  their  supply  or  demand,  but 
likewise  on  account  of  any  similar  change  in  reference  to  the 
money  for  which  they  are  bought  or  sold. 

This  last  conclusion  may  be  reached  by  an  argument, 
although  substantially  the  same,  in  a  different  form.  When 
the  demand  for  money  increases,  every  thing  else  remaining 
unchanged,  it  is  implied  that  the  desire  to  possess  money, 
rather  than  other  things,  is  greater  than  before.  Less  money 
will  therefore  be  offered  in  exchange  for  all  other  commodi- 
ties ;  that  is,  there  will  be  a  general  fall  of  prices.  The 
contrary  effect  will  be  produced,  it  is  plain,  by  a  diminution 
in  the  demand  for  money.  Any  augmentation  of  the  supply 
of  money  will,  of  course,  be  followed  by  a  greater  number' of 
purchases,  and  any  diminution  of  such  supply  by  a  less 
number  of  purchases.    In  the  one  of  the  cases  just  mentioned, 


POLITICAL  ECONOMV.  47 

there  will,  therefore,  be  a  general  fall  of  prices ;  and,  in  the 
other,  a  general  rise  of  prices  will  take  place.  The  prices  of 
commodities  will  consequently  vary,  as  before  stated,  as  well 
on  account  of  any  previous  alteration  in  the  supply  of  or 
demand  for  money,  as  of  such  an  alteration  in  respect  to  the 
commodities  themselves. 

The  effect,  moreover,  on  prices,  of  the  supply  of  money,  or 
the  demand  for  it,  becoming  greater  or  less,  is  to  cause  them 
to  rise  or  fall  in  the  same  proportion.  So  long  as  the  neces- 
sities and  desires  of  men  remain  unaltered,  will  the  money 
actually  circulating  be  applied  to  the  procuring  of  the  very 
same  commodities.  If  the  circulating  medium  be  doubled, 
the  price  of  every  thing  will  be  doubled ;  and  the  like  in 
whatever  other  ratio  that  medium  may  be  supposed  to  have 
increased  ;  or  in  whatever  ratio  it  be  supposed  to  have  dimin- 
ished. The  exchangeable  values  of  commodities,  other  than 
money,  when  these  are  compared  with  each  other,  will  hence 
remain  unaffected  by  any  supposed  alteration  in  the  supply  of 
or  demand  for  money ;  and  we  may,  therefore,  reason  cor- 
rectly concerning  their  exchangeable  values  universally,  by 
assuming  the  supply  of  and  demand  for  money  to  remain 
unaltered.  But,  when  this  is  the  case,  it  has  been  shewn  that 
the  price  of  every  commodity  will  vary  with  every  alteration 
in  the  present  or  expected  rates  of  its  supply  or  demand.  We 
are  hence  entitled  to  conclude  that,  when  any  two  commodi- 
ties, other  than  money,  are  compared  together, — and  this 
even  when  their  exchange  takes  place  through  the  intervention 
of  money,  —  their  exchangeable  values  will  depend  on  the 
degree  of  the  supply  and  demand  of  both,  in  reference  to  the 
present  and  likewise  to  the  future. 

Again,  since  the  exchangeable  value  of  money,  when 
estimated  in  reference  to  any  other  commodity,  is  dependent 
entirely  on  the  quantity  of  money  for  which  this  is  exchanged, 
so  that,  when  the  price  of  the  commodity  is  reduced  in  any 
proportion,  the  exchangeable  value  of  money,  thus  estimated. 


48  THE  PRINCIPLES  OF 

will  be  augmented  in  the  very  same  proportion,  it  follows  that 
money  will  have  its  value  in  exchange  determined  precisely 
like  that  of  every  other  commodity,  viz.  both  by  the  relation 
existing  between  supply  and  demand  in  respect  to  itself,  and 
in  respect  to  the  commodity  for  which  it  is  exchanged. 

I  have  now,  I  hope,  explained  in  an  unexceptionable  manner, 
and  perhaps  with  more  than  sufficient  fulness,  the  operation 
of  the  principles  of  supply  and  demand  in  determining  the 
exchangeable  values  of  material  commodities.     The  question 
still  remains, — on  what  principles  are  the  exchangeable  values 
of  immaterial  or  intellectual  products  determined  1     And  also 
on  what  principles  is  that  of  labour,  or  are  the  wages  of 
labour  determined  ?     In  reference  to  immaterial  products,  I 
may  remark  that  there  is  no  part  of  the  foregoing  reasoning 
which  is  not  quite  as  applicable  to  them  as  to  those  that  are 
material,  excepting  the  circumstance  of  there  being  nothing 
in  relation  to  the  former  analogous  to  the  "  stock  on  hand" 
among  the  sellers,  of  which  mention  has  been  made  when 
treating  of  the  exchangeable  values  of  the  latter.      But  my 
reasoning,  it  will  be  recollected,  did  not  in  any  way  assume 
that  stock  to  be  of  a  particular  magnitude  ;  and  the  conclu- 
sions to  which  I  was  led  must,  therefore,  be  equally  true, 
however  small  that  stock  may  be  supposed  to  be.     And  it 
would  be  quite  logical  to  infer  their  truth  even  in  the  case  of 
that  stock,  to   use  the  language  of  mathematicians,   being 
diminished  indefinitely ;  which  is  the  case  with  all  immaterial 
commodities.      They  are  consumed  in  the  very  act  of  being 
produced,  and  cannot,  it  is  manifest,  remain  even  for  an  instant 
"  on  hand." 

But  since  they  are  not  embodied  in  any  intervening  object, 
they  may,  very  clearly,  be  resolved  into  the  compensation  or 
wages  of  intellectual  labour ;  and  the  investigation  of  the 
theory  of  exchangeable  value  may,  independently  of  what  has 
just  been  stated,  be  completed  by  pointing  out  the  causes  which 
regulate  wages.     These  too,  it  can  easily  be  shewn,  are 


POLITICAL  ECONOMY.  49 

determined,  at  any  particular  time,  on  the  principles  of  supply 
and  demand. 

For  this  purpose,  let  us  suppose  in  the  first  place,  while  the 
demand  for  labour  remains  the  same,  the  supply  of  it  to 
increase.  The  same  amount  of  what  is  appropriated  by  the 
capitahsts  for  wages  will  now  have  to  be  divided  among  a 
greater  number  of  persons.  The  wages  of  each  must,  there- 
fore, be  diminished.  Secondly,  it  is  obvious  that  the  contrary 
effect  will  follow  a  diminution  of  the  supply  of  labour. 
Thirdly,  let  the  amount  of  labour  applied  continue  the  same, 
and  the  demand  for  labour  increase.  Such  a  demand  neces- 
sarily implies  that  a  greater  amount  of  wages  is  distributed 
among  the  same  number  of  persons  :  of  course,  the  share  or 
wages  of  each  will  be  greater  than  before.  AnA  fourthly,  the 
contrary  effect  to  this  will  plainly  be  produced  by  a  dimi- 
nished demand.  This  reasoning  in  regard  to  the  exchange- 
able value,  or  wages,  of  labour,  I  need  hardly  say,  is 
applicable  to  labour  of  every  sort,  bodily  or  mental, — however 
rude  or  refined. 

The  prices,  or  exchangeable  values,  of  all  things,  including 
labour,  are  determined  then,  in  every  instance,  by  the  relation 
subsisting  between  supply  and  demand. 


50  THE  PRINCIPLES  OP 


CHAPTER  IX. 

NATURAL  AS  DISTINGUISHED  FROM  MARKET  PRICES — NATURAL 
WAGES. 

If  prices  were  ever  fluctuating,  without  regard  to  any 
fixed  law,  no  other  account  could  be  given  of  them  than  that 
they  are  determined  by  the  relation  subsisting  between 
supply  and  demand ;  aiid  our  analysis  in  respect  to  them 
would  necessarily  be  here  at  an  end.  But  wherever  any 
constancy  can  be  observed  amidst  the  changes  observed, 
there  we  may  be  assured  that  such  a  law  exists,  and  is  a 
legitimate  subject  for  our  investigation.  Now  any  one  who 
will  carefully  compare,  for  a  sufficient  length  of  time,  the 
prices  of  a  particular  article,  in  any  market,  will  find  that,  in 
a  few  cases  only  excepted,  there  is  such  a  thing  as  a  mean  or 
average  price,  which  may  be  regarded  as  invariable,  while 
the  actual  or  market  prices  seem,  as  it  were,  to  oscillate 
about  them,  and  to  have  a  constant  tendency  to  approach  and 
to  become  equal  to  them.  On  what  circumstances  do  these 
average  prices  depend  1  Or,  which  is  the  same  thing,  why  is 
the  price,  at  any  period,  of  an  article,  what  it  is  on  the  average, 
and  neither  more  nor  less  ?  The  inquiry  is  one,  not  only 
more  recondite  than  that  in  which  we  have  been  lately 
engaged  concerning  market  prices,  but  also  more  intimately 
connected  with  the  most  important  deductions  of  our  science. 
I  must,  therefore,  ask  the  particular  attention  of  the  reader, 
while  I  pursue  it. 

It  naturally  subdivides  itself  into  two  separate  inquiries ; 
the  one  relating  to  the  price  or  wages  oi  labour ;  the  other  to 
the  prices  of  the  different  constituent  portions  of  wealth.  I 
might,  indeed,  say  here  of  material  wealth,  because,  as  it  will 


POLITICAL   ECONOMr.  51 

be  recollected  I  stated  in  the  preceding  chapter,  the  price  or 
compensation  for  intellectual  or  immaterial  products  is 
resolvable  into  the  wages  of  labour. 

Let  us  first  enter  upon  the  inquiry  respecting  wages.  It  is 
obvious  that,  if  the  circumstances  under  which  the  labour  of 
man  is  exerted  were  in  other  respects  the  same,  wages  will 
be  every  where  always  in  proportion  to  the  quantity  of 
labour ;  in  other  words,  the  wages  of  labour  will  be  the  same 
in  all  employments.  For  if  they  were  not  so,  labour  would 
be  transferred  from  those  employments  where  lower  wages 
were  paid  to  others  in  which  the  remuneration  of  labour  was 
higher ;  and  the  rising  generation,  in  seeking  for  themselves, 
or  parents,  in  seeking  for  their  children,  the  most  advantageous 
employments,  will  prefer  such  as  yield  the  highest  wages. 
In  this  manner,  by  diminishing  in  some  employments,  and 
increasing  in  others,  the  supply  of  labour,  an  equality  of 
wages  would  be  ultimately  established ;  though  with  more  or 
less  rapidity,  according  to  the  greater  or  less  analogy  exist- 
ing between  the  occupations  from  which  and  those  to  which  the 
the  transfer  of  labour  is  made,  and  the  consequent  facility  or 
difficulty  of  making  such  transfer. 

The  wages  of  labour  are  however,  in  reality,  exceedingly 
unequal.  Compare,  for  example,  the  wages  of  a  common 
day-labourer  with  those  of  the  professional  man,  or  with  those 
of  the  artist.  Hence  we  may  infer  that  there  are  other 
circumstances,  besides  the  quantity  of  labour  applied,  which 
have  an  influence  on  the  amount  of  wages  received  in  different 
occupations.  These  may  be  all  classed  under  the  two  follow- 
ing heads. 

1.  The  agreeableness,  or  disagreeableness,  of  an  occupation. 
This  includes  such  considerations  as  the  following :  the 
hardness  or  easiness  of  the  work  to  be  done ;  its  being  cleanly 
or  filthy ;  its  requiring  a  greater  or  less  degree  of  exposure ; 
its  being  healthy  or  the  reverse;  its  being  more  or  less 
steady  ;   the  probability  or   improbability  of  success  in  it ; 


52  THE  rRINCIPLES  OF 

its  capability  of  being  exercised  at  home  or  not ;  the  degree 
of  honour  or  disgrace  attached  to  it.  It  will  at  once  be 
perceived  that  considerations  of  this  nature  will  combine 
with  the  amount  of  wages  to  be  received,  so  to  regulate  the 
supply  of  labour  in  every  occupation,  as  to  establish  an  equality, 
not  of  wages,  but  of  advantages  and  disadvantages  gene- 
rally, comprehending  of  course,  under  these  terms,  a  higher 
or  lower  rate  of  wages,  as  an  element,  though  one  element 
only. 

2.  When  different  employments  exact  from  the  labourer 
peculiar  endowments,  natural  or  acquired.  We  have  a  case 
of  this  kind  where  any  employment  requires  especial  trustwor- 
thiness. The  supply  of  labourers  will  obviously  be  limited 
in  such  a  manner,  as  to  establish  on  that  account  a  higher 
rate  of  wages.  Of  this  nature,  likewise,  are  those  employments, 
in  which  a  preparatory  and  expensive  education  or  training 
is  necessary;  in  which  case,  the  supply  of  labour  will  be 
so  regulated  as  to  determine  a  rate  of  wages  sufficient  to 
compensate,  in  addition  to  the  labour  actually  appUed,  the 
expense  laid  out  in  qualifying  the  labourer  for  his  occupation. 
His  wages  must  be  high  enough  to  replace,  on  the  average, 
the  sum  expended  in  his  preparatory  education,  with  the 
usual  profits.  So,  at  least,  they  would  be,  did  not  the  hope  of 
success  in  his  profession  or  calling  in  life  occasionally  operate 
on  the  youthful  mind  with  somewhat  greater  force  than  the 
apprehension  of  failure. 

The  circumstances  which  have  been  enumerated,  while  they 
cause  a  very  great  diversity  to  subsist  in  the  amount  of  wages 
received  in  different  employments,  will  also  cause  wages  in 
each  of  them  to  tend  continually  to  a  certain  rate,  which, 
when  attained,  offers  no  inducement  for  a  transfer  of  labour  to 
or  from  it.  These  average  wages,  about  which  the  market 
rates  of  wages  are  ever  oscillating  within  certain  limits,  may 
be  designated  as  natural  or  necessartj  wages ;  natural,  because 
the  market  rates  of  wages  have  a  tendency  to  coincide  with 


POLITICAL    ECONOMY.  63 

them ;  and  necessary,  because  they  must  be  at  least  so  high,  in 
order  to  ensure  the  continued  production  of  any  commodity, 
in  the  usual  quantity.  And  when,  so  to  speak,  an  equilibrium 
takes  place  with  respect  to  wages,  by  the  contemporaneous 
establishment  of  their  natural  rates  in  all  the  various  employ, 
ments  of  industry,  the  rates  of  wages  may  be  said  to  become 
equalised ;  although  the  expression  may  not  be  such  as  is 
altogether  desirable,  and  is  accurate  only  in  reference  to  all  the 
circumstances  of  advantage  or  of  disadvantage,  accompanying 
the  application  of  a  given  quantity  of  labour. 


CHAPTER  X. 

THE  SUBJECT  OF  NATURAL  WAGES  CONTINUED. 

There  might  perhaps  in  some  occupations  seem,  at  first 
view,  to  be  no  uniform  natural  rate  of  wages,  on  account  of 
the  compensation  which  is  paid  to  different  individuals  for 
their  work  or  services,  during  equal  portions  of  time,  being 
occasionally  different.  This  is  owing  to  the  capacity,  or  skill, 
of  all  persons  not  being  the  same.  He  who  does  twice  or 
thrice  as  much  work  of  the  same  sort,  in  the  same  time,  dis- 
poses in  reality  of  twice  or  thrice  the  quantity  of  labour ;  the 
exchangeable  value,  or  wages,  of  which  will,  therefore,  be 
compensated  in  both  cases  alike.  The  wages  of  labour  will 
be  at  a  certain  fixed  rate  in  each  occupation ;  while  the  daily, 
weekly,  or  monthly  wages  of  the  labourer  may  admit  of  a 
certain  degree  of  diversity.  Where,  however,  the  work  done 
is  not  such  as  all  persons  engaged  in  the  same  general  employ- 
ment are  able  to  perform,  the  case  will  be  similar  to  that 
already  considered  of  different  occupations,  which  require 

8 


54  THK    PRINCIPLES   Of 

from  the  labourer  different  endowments,  natural  or  acquired ; 
and  the  eifects  on  wages  must  necessarily  be  the  same. 

All  that  has  hitherto  been  said  on  the  present  branch  of  our 
subject  has  been  founded  on  the  suppositions,  first,  that  every 
individual,  in  seeking  for  employment,  is  actuated  exclusively 
by  interested  motives, — and  secondly,  that  full  scope  is  given 
to  the  operation  of  the  principles  of  supply  and  demand.  Where 
either  of  these  suppositions  does  not  hold  good,  wages  may  be 
permanently  above  or  below  their  natural  rate.     It  may  not  be 
uninteresting  to  specify  a  case  or  two.     One,  and  sometimes  a 
very  striking  one,  of  the  absence  of  interested  motives  in  the 
regulation  of  wages,  is  presented  by  the  christian  missionary, 
who,  not  applying  his  ministrations  where  there  is  the  most 
demand  for  them,  using  the  word  in  its  politico-economical 
acceptation,  is   often  content  with  comparatively  a  slender 
portion  of  the  comforts  of  Hfe,  or  perhaps  even  exposes  himself 
to  peril  and  privation  among  remote  and  savage  nations,  for 
the  sake  of  promoting  the  highest  interests  of  his  fellow-men. 
Those  guilds  or  corporations  of  trades,  statutes  of  apprentice- 
ship, and  other  regulations  of  the  kind,  the  offspring  of  the 
dark  and  middle  ages  in  Europe,  whose  effect  is  to  limit  the 
supply  of  labourers,  afford  examples  of  cases  in  which  wages 
may  be   artificially  maintained  at  a  rate  higher  than  their 
natural  rate.     The  salaries  of  public  officers,  also,  have  some- 
times little  or  no  immediate  connexion  with  the  principles  of 
supply  and  demand.    This  arises  from  the  dispensers  of  offices 
undertaking,  in   most  cases  very  properly,  to  judge  of  the 
qualifications  of  applicants  or  candidates  to  fill  them  with 
advantage  to  the  public,  and  of  the  amount  of  the  salaries 
which  it  is  fitting  to  pay.     If  an  appointment  to  office  involved 
simply  a  contract  for  the  performance  of  certain  duties,  indi- 
viduals could  often  be  found  willing  to  perform  them  for  a 
small  pecuniary  compensation,  or  even  no  compensation  at 
all.    Indeed,  some  of  the  most  important  might  actually  com- 
mand a  considerable  price  in  the  market.    How  many  per- 


POLITICAL  ECONOMY.  55 

sons,  and  very  incompetent  persons  too,  would  be  willing,  for 
instance,  to  bid  very  high  for  the  presidency  of  the  United 
States,  if,  as  hap^  -"ned  to  the  throne  of  the  Roman  Empire,  it 
were  to  be  put  up  foi  sale  at  public  auction  ! 

Again,  all  that  precedes  has  a  relation  to  occupations  pur- 
sued in  the  same  place  or  district.  But  wages  may,  in  different 
parts  of  a  country,  be  at  very  different  rates  in  the  very  same 
occupations.  Besides  the  expense,  in  a  greater  or  less  degree, 
connected  with  every  change  of  residence — an  expense  which 
the  great  majority  of  labourers  may  be  very  ill  able  to  afford — 
man  is,  in  general,  on  other  accounts  not  readily  to  be  moved 
from  place  to  place.  When  he  consents  to  the  adoption  of  such 
a  step,  he  must  likewise  make  up  his  mind  to  a  rupture  of  the 
ties  of  kindred  and  of  friendship,  and  to  do  violence  to  the  thou- 
sand associations  which  bind  the  heart  of  every  one  to  the  place 
of  his  birth,  or  the  home  of  his  youth, — to  go,  if  his  destination 
be  a  remote  one,  to  perhaps  an  uncongenial  climate,  and  a 
different  system  of  manners  and  customs.  Similar  observa- 
tions will  apply  to  emigration  from  any  country  to  a  foreign 
one,  and  with  still  greater  force  ;  for  the  emigrant  will,  for  the 
most  part,  have  to  encounter  the  inconvenience  of  a  still  greater 
diversity  in  the  condition  of  society,  together  with  those  arising 
from  a  difference  of  language,  and  will,  at  all  events,  become 
subjected  to  another  government,  not  always  administered  on 
better  principles  than  his  own  ;  with  which  it  may  even  come 
occasionally  into  hostile  collision.  The  considerations,  some 
or  all  them,  which  have  been  mentioned,  do,  in  fact,  produce  a 
permanent  difference  in  the  rates  of  wages  in  different  coun- 
tries, and  in  different  parts  of  the  same  country,  by  preventing 
as  rapid  and  as  extensive  a  transfer  of  labour,  from  where 
wages  are  lower  to  where  they  are  higher,  as  would  other- 
wise take  place. 

I  shall  conclude,  for  the  present,  my  remarks  on  wages,  by 
deriving  from  the  doctrine  of  their  equalisation  in  different 
employments  the  practical  consequence,  that  although,  if  every 


56  THE  PRINCIPLES  OF 

individual  were  to  be  entirely  indifferent  in  tlie  choice  of  an 
occupation,  such  equalisation  could  not  take  place,  and  wages 
would  vary  according  to  no  fixed  law,  the  question  of  the  choice 
of  a  profession  or  trade  is  still  one  of  less  importance  and  diffi- 
culty, and  ought  to  be  one  of  less  doubt  and  hesitation,  than 
is  very  commonly  supposed ;  and  a  particular  individual  will 
incur  but  little  hazard  of  committing  any  great  mistake  in  his 
choice,  if  he  follow  the  bent  of  his  inclinations,  and  select  that 
occupation  for  which  he  has,  most  probably,  the  greatest 
aptitude.  Since  all  occupations  in  the  same  region  of  country 
are,  on  the  average,  every  circumstance  considered,  equally 
advantageous,  he  may  rest  assured  that  if,  at  a  particular 
period,  there  should  be  in  one  place  an  over-supply  of  any 
species  of  labour,  there  will,  it  is  extremely  probable,  be  con- 
temporaneously an  under-supply  of  the  same  species  of  labour 
in  some  other  place,  and  that  the  over-supply  in  question  can 
be  only  temporary.  It  is  often  very  remarkable,  also,  how 
rapidly  an  under-supply  of  labour  sometimes  ceases  to  exist, 
and  is  even  converted  into  the  contrary  state  of  things,  by  an 
influx  of  labourers  from  where  the  supply  is  more  abundant, — 
each  labourer  being  apt  to  forget  that  every  other  may  be 
operated  on,  to  induce  a  change  of  his  residence,  in  the  same 
manner  as  himself. 


POLITICAL    ECONOMY.  57 


CHAPTER  XI. 

NATURAL  PRICES GENERAL  RATE  OF  PROFITS TRANSFER  OF 

CAPITAL. 

I  PROCEED  to  the  second  head  of  inquiry  in  respect  to  average 
prices,  viz.  the  circumstances  which  determine  the  average 
prices  of  commodities  other  than  labour.  If  we  suppose  capi- 
tal to  be  applied  in  every  branch  of  industry  under  similar 
circumstances  of  advantage  or  of  disadvantage,  pro^<5  excepted, 
it  will  necessarily  follow  that  these  must  also  have  a  tendency 
every  where  to  equality  ;  for  if  they  were  at  any  time  unequal, 
the  interests  of  the  capitaUsts  would  obviously  lead  them  to 
transfer  their  capitals  from  the  less  to  the  more  profitable 
employments ;  and  this  again,  by  diminishing  the  supply,  and 
therefore  raising  prices  in  the  former, — and  increasing  it  in 
the  latter,  and  therefore  lowering  prices, — would  tend  to  the 
estabUshment  of  a  general  rate  of  profits.  The  market  prices 
of  commodities  will,  of  course,  continually  fluctuate  about 
those  prices  which  determine  that  rate  of  profits,  and  will  like- 
wise always  have  a  tendency  to  an  equality  with  them.  These 
average  prices,  as  in  the  analogous  case  of  wages,  are  denomi- 
nated natural  or  necessary  prices ;  natural,  because  market 
prices  naturally  tend  to  a  coincidence  with  them ;  and  neces- 
sary, because  prices  at  least  as  high  are  necessary  to  secure 
the  continued  production  of  a  commodity  in  the  usual  quan- 
tity. The  deviations  of  market  from  natural  prices  may  be 
greater,  and  endure  for  a  longer  time,  according  to  the  diffi- 
culty of  transferring  capital  from  the  employments  yielding  a 
lower  to  those  which  yield  a  higher  rate  of  profit. 

The  possibility  has  been  taken  for  granted  of  transferring 
capital  from  one  employment  to  another.  In  this  nothing  was 
assumed  beyond  what  every  one  knows  to  be  a  fact.    As, 


58  THE    PRINCIPLES   OP 

however,  the  mode  m  which  such  transfer  is  effected  is  a 
matter  of  some  importance  in  its  bearing  on  many  practical 
questions,  it  may  be  worth  while  to  endeavour  to  give  pre- 
cision to  our  ideas  respecting  it.     It  must  be  manifest,  in  the 
first  place,  that  capital  may  sometimes  be  very  readily  trans- 
ferred from  one  analogous  employment  to  another.    A  steam 
engine,  for   example,  employed   in  one    manufacture,   may, 
very  possibly,  be  quite  as  well  fitted  for  a  different  one.     In- 
deed, there  is  a  certain  portion  of  capital  which  is  almost 
equally  suited  for  every  employment :  such,  I  mean,  as  the 
food  and  clothing  of  many  classes  of  workmen.     These,  it  is 
obvious,  may  be  very  nearly  the  same  in  very  different  occupa- 
tions, and  admit,  consequently,  of  a  ready  transfer  from  one  to 
any  other.    Again,  though  there  are  certain  specific  portions 
of  capital  which  are  absolutely  intransferahle  from  the  pur- 
poses to  which  they  are  appropriated  to  certain  others  having 
little  or  no  analogy  with  them,  as,  for  instance,  the  ship  from 
commerce  to  agriculture, — yet  capital,  estimating  its  amount 
by  its  exchangeable  value,  may,  even  in  such  cases,  be  said 
with  propriety  to  be,  to  a  certain  extent,  gradually  transfer- 
able.    How  so  ?  it  may  be  asked.     Does  not  this  seem  like  a 
contradiction  in  terms  ?     This  is  the  explanation.    The  motive 
for  desiring  to  transfer  capital  can  here  be  no  other  than  a 
difference  in  the  rate  of  profits.     Now  if  a  specific  portion  of 
any  one's  capital  be  absolutely  intransferahle,  that  desire,  it  is 
plain,  can  only  be  productive  of  its  proper  effect  by  the  trans- 
fer of  the  remaining  portion  of  it ;  but  this  will  not  at  once 
take   place,  and  the  portion   of  capital  first   mentioned  be 
abandoned,  unless  a  greater  amount,  and  not  simply  a  higher 
rate,  of  profits  shall  be  received  than  before.      The  transfer 
in   question  will,  therefore,  be  gradually  effected  by  omit- 
ting, where  it  can  conveniently  be  done,  to  repair  the  wear 
and  tear  of  the  old  and  intransferahle  portions  of  capital,  and 
by  not  substituting   new  machinery  or  other  instruments  of 
production  in  their  place,  when  those  in  use  become  dilapidated 


rOLITICAL    ECONOMY.  69 

or  unserviceable.  By  such  a  process  alone,  may  the  navigating 
capital  of  a  nation,  for  example,  be  at  all  transferred  from  the 
ocean  to  the  land. 

It  is  usual  to  speak  of  the  losses  incurred  by  every  transfer 
of  capital  from  one  employment  to  another.  This  is, 
however,  an  inaccuracy.  The  transfer  is  made,  in  order  that 
the  ivhole  amount  of  profits  received  shall  be  augmented ;  and, 
no  matter  how  much  capital  may  have  been  abandoned  in  the 
transfer  of  the  remainder,  this  remainder,  because  a  greater 
amount  of  profits  is  now  received  than  before,  will  have  a 
greater  exchangeable  value  than  the  entire  capital  had  ;  and 
hence,  so  far  from  there  having  been  any  real  loss  of  capital, 
the  portion  of  it  abandoned  will  have  been  more  than  compen- 
sated. If,  indeed,  the  capitalist  had  been  induced  to  transfer 
his  capital,  because  profits,  in  the  former  application  of  it, 
had  fallen  below  the  general  rate,  he  would  have  incurred 
a  loss  before  any  transfer  had  taken  place ;  which,  so  far 
from  giving  occasion  to  any  additional  loss,  is  had  recourse 
to  for  the  purpose  of  preventing  such  a  result. 

Although  the  distinction  between  capital  as  more  or  less 
readily  transferable  is  not  identical,  as  must  have  been 
already  perceived,  with  that  of  circulating  and  fixed  capital, 
they  will  nevertheless  be  found,  in  the  majority  of  instances, 
to  approach  very  near  to  each  other.  Hence  it  is  that,  in 
reference  generally  to  the  transfer  of  capital,  it  is  quite 
customary  to  speak  of  fixed  capital  as  being  of  course  trans- 
ferred with  difficulty;  and  the  reverse  with  respect  to 
circulating  capital. 

Perhaps  it  may  be  thought  by  some  that,  in  order  to 
demonstrate  the  law  of  the  general  equalisation  of  profits,  it 
is  unnecessary  to  establish  the  possibility,  and  still  less  so  to 
exhibit  the  manner,  of  transferring  capital  from  one  employ- 
ment to  another ;  and  that  an  equaUty  of  profits  would 
ultimately,  though  in  many  cases  slowly,  be  produced  by  the 
continual  application  of  the  accumulating  capital  to  the  most 


60  THE    PRINCIPLES  OF 

profitable  employments.  But,  not  to  mention  that,  in  a 
stationary  or  declining  country,  there  is  no  such  thing  as  an 
accumulation  of  its  capital,  speaking  of  this  as  a  whole,  an 
attentive  consideration  of  the  subject  will  enable  my  readers 
to  perceive  that,  if  capital  be  in  fact  accumulating,  or,  which 
is  the  same  thing,  be  increasing,  it  must  do  so  in  all  or 
nearly  all  employments,  and  that  an  addition  must,  in  conse- 
quence, be  making  simultaneously,  as  well  to  the  compara- 
tively intransferable  portions  of  the  capital  of  a  country,  as 
to  those  that  are  transferable,  —  to  fixed  and  circulating 
capital  alike.  We  may  therefore  conclude,  that  to  invest  any 
portion  of  the  accumulating  capital,  so  as  to  yield  the  great- 
est profits,  implies  in  every  case  a  transfer  of  capital, 
excepting  only  when  the  newly  existing  capital  is  already 
most  profitably  applied, — and  implies  too  a  transfer  of 
fixed  capital.  The  only  exception  to  tlds,  and  it  is  a  very 
rare  one  indeed,  being  when  the  less  profitable  employments 
might  happen  to  have  circulating  capital  alone  applied  to 
them. 

Before  proceeding  farther,  it  may  be  proper  to  mention 
that,  in  my  reasoning  on  the  subject  of  natural  prices,  I  have 
taken  for  granted  the  possibility  of  producing  every  commodity 
in  a  greater  or  less  quantity,  at  pleasure.  Now  this  is  not 
always  true.  There  are  a  few  things  which,  from  their  very 
nature,  do  not  admit  of  reproduction  at  will ;  and  of  whose 
exchangeable  value  no  other  account  can  be  rendered  than 
that  it  is  determined  on  the  principles  of  supply  and  demand. 
They  have  a  market  price,  but  no  natural  price.  "  Some 
rare  statues  and  pictures,  scarce  books  and  coins,  wines  of  a 
peculiar  quality  which  can  be  made  only  from  grapes  grown 
on  a  particular  soil,  and  of  which  there  is  a  very  limited 
quantity,  are  all  of  this  description." 


POLITICAL  ECONOMY.  61 


CHAPTER  XII. 

SUBJECT  OF  NATURAL    PRICES    CONTINUED THE   ORDINARY  RATES 

OF    PROFITS DETERMINATION    OF    THE    PRICES   OF   COMMODITIES 

BY  THE  COST  OF  PRODUCING  THEM. 

In  establishing  the  existence  of  a  general  rate  of  profits,  and 
the  existence  likewise  of  certain  natural  or  necessary  prices, 
which,  when  paid  for  any  commodity,  will  yield  the  capitalist 
that  rate  of  profits,  and  to  which  market  prices  have  a 
constant  tendency  to  conform,  it  will  be  recollected  that  a 
perfect  similarity  was  assumed  as  regards  every  circumstance 
of  advantage  or  disadvantage  in  the  application  of  capital  to 
different  employments,  excepting  only  the  rate  of  profits  to  be 
received.  Now  if  those  circumstances  be  supposed  to  vary  in 
different  employments,  as  they  in  reality  do  to  a  certain  extent, 
though  in  general  to  an  extent  that  is  inconsiderable  when 
compared  to  the  variations  in  the  similar  circumstances 
which  have  an  influence  on  the  rate  of  wages,  it  is  evident 
that  they  will  so  modify  the  distribution  of  capital,  as  to  reduce 
the  rate  of  profits  in  each  employment  so  much  below  the 
general  or  average  rate,  as  may  counterbalance  the  posses- 
sion by  the  capitalist  of  any  peculiar  advantages  in  other 
respects, — and  to  raise  it  on  the  contrary  supposition. 
Advantages  of  the  kind  adverted  to  were  conferred  on 
agricultural  capital  in  the  different  countries  of  Europe  by  the 
feudal  system,  which  associated,  not  only  nobility,  but  also 
peculiar  privileges  and  power,  with  the  possession  of  large 
landed  estates.  And  even  in  our  own  country,  where  the 
spirit  of  civil  and  religious  liberty  has,  from  its  first  settlement 
by  Europeans  to  the  present  time,  watchfully  guarded  against 
the  introduction  of  institutions  partaking  in  any  degree  of 
feudality,   the   right   of  suffrage  has  been  in  certain  cases 

9 


62  THE  PRINCIPLES   OP 

confined  by  the  constitutions  of  some  of  the  states  to  freehold- 
ers ;  thus  granting  a  pecuhar,  though  perhaps  a  compara- 
tively slight,  advantage  to  the  owner  of  real  property. 
Independently,  however,  of  any  peculiarity  in  the  organisation 
of  government,  or  the  institutions  of  society,  the  possession 
of  real  property, — of  houses  and  land, — in  consequence  of  their 
visible  and  permanent  character  operating  on  the  minds  of 
men,  makes  a  stronger  impression  of  riches  than  an  equal 
amount  of  personal  property  would  do.  Their  owner  gains 
more  of  that  consideration  and  influence  in  society  which  is 
every  where,  in  a  greater  or  less  degree,  acquired  by  the 
possessors  of  great  wealth,  and  will,  consequently,  be 
induced  to  content  himself  with  a  diminished  rate  of  profits. 

The  inequality  existing,  at  the  same  period  of  time,  in  the 
profits  of  capital  among  different  nations,  having  a  constant 
and  extensive  intercourse  with  each  other,  is  to  be  accounted 
for  on  the  same  principles.  If  an  inhabitant  of  any  one 
country  could,  by  transferring  his  capital  to  another,  augment 
his  profits, — and  the  remark  is  equally  applicable,  only  in  a 
less  degree,  to  the  transfer  of  capital  from  one  province  to 
another  of  the  same  country, — he  might,  nevertheless,  be 
disinclined  to  take  such  a  step,  through  an  unwillingness  to 
be  separated  from  his  property,  and  to  entrust  it  to  foreign 
management  and  foreign  legislation;  and  the  difficulties  in 
the  way  of  his  emigrating  with  his  property, — difficulties 
which  have  been  already  stated, — are  far  from  being  at  all 
times  easily  overcome. 

But  although,  in  consequence  of  the  different  circumstances 
of  advantage  or  disadvantage  in  which  capital  is  applied, 
profits  will  not  tend  to  an  absolute  equality  in  all  employments, 
even  in  the  same  district  of  country,  it  is  plain  that  they  will 
have  a  tendency  to  be  at  such  a  rate  in  each,  as  will  offer  no 
motive  for  transferring  capital  from  one  employment  to 
another ;  and  that  rate  will,  of  course,  be  the  ordinary  rate 
of  profits.     When,  too,  the  ordinary  rates  subsist  at  the  same 


POLITICAL  ECONOMY. 


time  in  all  employments,  profits,  as  in  the  analogous  case 
concerning  wages,  may  be  said  to  be  equalised.  With 
respect  to  natural  prices,  they  will  have  the  same  relation  to 
the  various  ordinary  rates,  that  they  were  shewn  to  have  to 
the  general  rate,  of  profits ;  and  their  relation  to  the  market 
prices  of  commodities  will  also  be  the  same  as  before. 

I  may  here  derive  a  like  practical  lesson  concerning  the 
channel  into  which  capital  can,  at  a  given  time  and  place,  be 
most  profitably  directed,  as  I  did  in  reference  to  the  choice  of 
an  occupation,  when  I  treated  of  the  equalisation  of  wages. 
There  is  room,  no  doubt,  for  the  exercise  of  that  sagacity 
which  is  the  characteristic  of  the  expert  man  of  business,  in 
the  disposition  to  be  made  of  capital ;  but  it  is  still  true  that, 
let  an  individual  dispose  of  his  capital  in  any  employment  as 
he  will,  he  cannot  expect  to  make  eventually  more  than  the 
ordinary  profits.  Those  investments  of  capital,  indeed,  which 
seem  often  to  promise  most  are  very  apt  to  be  less  profitable 
than  others.  Just  as,  when  any  market  is  supposed  to  be 
understocked  with  labour,  there  labourers  will  congregate 
from  other  quarters,  and  will,  in  consequence,  bring  about 
frequently  a  contrary  state  of  things ;  so,  with  the  exception  of 
a  few  who  may  succeed  in  getting  the  start  of  all  others,  the 
capitalists,  who  embark  in  speculations  on  account  of  an 
impression  generally  diffused  of  their  being  more  than  ordina- 
rily profitable,  are  precisely  those  who  are  most  likely  to  be 
losers  instead  of  gainers.  Every  one  acts  very  much  as  if 
others  had  not  the  same  motives  with  himself  to  do  as  he  is 
doing.  And  so  much  capital  comes  to  be  invested  as  to  glut 
the  market  with  its  products,  and  to  cause  prices  to  fall,  and 
sometimes  to  fall  ruinously  low  to  the  producers.  Instances  of 
the  kind  can  scarcely  fail  to  occur  upon  the  unexpected  open- 
ing of  ports  of  commerce ;  and  also  on  the  granting  by 
governments  of  peculiar  encouragement  or  privileges  to  any 
one  branch  of  industry  over  others. 

It  may  now  be  mentioned  that,  where  the  price  of  any  thing 


64  THE  PRINCIPLES  OP 

is  just  sufficient,  besides  replacing  the  capital  consumed  in  its 
'production,  to  yield  the  ordinary  profits  to  the  capitalist,  it  is 
said  to  repay  the  cost  of  producing  it.  Hence  natural  prices 
are  determined  by  the  cost  of  production.  And  since  market 
prices  are  ever  fluctuating  within  certain  limits  about  natural 
prices,  and  tend  continually  to  an  equaUty  with  them,  the  cost 
of  production  may  be  correctly  said  to  regulate  prices  univer- 
sally, market  as  well  as  natural. 


CHAPTER  XIII. 

EFFECTS  OF  MONOPOLIES   ON  PRICES. 

The  two  important  laws  which  have  been  deduced,  of  the 
equalisation  of  profits  in  the  different  branches  of  industry,  and 
of  the  determination  of  the  prices  of  commodities  by  the  cost 
of  producing  them,  do  not  apply  to  the  case  of  a  monopoly. 

Let  us  suppose  the  exclusive  privilege  of  producing  a  parti- 
cular article  to  be  bestowed  on  an  individual,  or  a  number  of 
individuals  associated  together  and  acting  in  concert.  In  the 
first  instance,  let  it  likewise  be  supposed  that  the  capital  at 
their  disposal  is  not  sufficiently  large  to  enable  them  to  supply 
the  market  with  the  commodity  which  they  produce,  in  suffi- 
cient abundance  to  cause  it  to  be  sold  as  low  as  its  natural 
price.  The  consequence  is  manifest,  that  they  will  receive 
more  than  the  ordinary  profits. 

The  supposition  is,  however,  hardly  admissible  that  they  will 
not  in  all  cases,  while  they  make  more  than  the  ordinary 
profits,  have  it  in  their  power  to  borrow,  or  otherwise  to  pro- 
cure, an  additional  capital,  if  they  should  deem  it  expedient  to 
do  so.  Let  us  then  assume,  in  the  next  place,  that  the  monopo- 
lists find  no  limit  to  their  power  of  producing,  in  a  deficiency 


POLITICAL   ECONOMY.  65 

of  capital.  The  exertion  of  this  power  will  be  now  limited 
only  by  the  interest  of  the  producers.  They  will  understock 
the  market ;  because,  by  so  doing,  they  will  receive  more  than 
the  ordinary  profits ;  while,  at  the  same  time,  these  profits 
will  be  yielded  to  them  by  the  capital  which  they  may  invest 
in  any  of  the  unmonopolised  branches  of  industry. 

If,  in  this  state  of  things,  capital  be  transferred  from  the 
monopoly  to  other  employments,  two  effects  of  an  opposite 
description  must  result :  the  profits  of  the  portion  transferred 
will  be  diminished ;  and  those  of  the  remainder  will  be  aug- 
mented. The  former  will  yield  only  the  ordinary  profits  ;  and 
the  profits  of  the  latter  will  be  augmented  in  consequence  of  the 
rise  of  prices  resulting  from  the  diminution  in  the  supply  of  the 
monopolised  commodity.  These  two  effects  cannot  be  always 
equal  to,  and  neutralise,  each  other  ;  for,  if  so,  when  the 
whole  monopoly  capital  is  transferred,  its  profits  ought  not  to 
be  less  than  before.  But  it  is  evident  that  they  will  then  be 
lessened,  because  they  will  be  just  equal  to  the  ordinary 
profits. 

Nor  can  any  one  of  the  two  effects  produced  be,  in  this 
manner,  uniformly  greater  than  the  other,  so  that  profits  shall 
be  continually  lessened ;  because,  if  this  were  the  case,  when 
capital  is  transferred  in  the  contrary  direction,  from  other 
employments  to  that  which  is  monopolised,  the  excess  of  the 
actual  above  the  ordinary  profits  ought,  on  the  other  hand,  to 
become  continually  greater  and  greater.  But  this  also  does 
not,  and  cannot,  correspond  with  the  fact.  As  soon  as  the 
transfer  is  sufficient  to  cause  the  market  price  of  the  monopo- 
lised commodity  to  fall  so  low  as  its  natural  price,  the  whole 
capital  of  the  monopolists  will  yield  profits  no  higher  than  at 
the  ordinary  rate ;  and  a  further  transfer  will  diminish  still 
more  the  amount  of  profits  received. 

We  are,  hence,  entitled  to  conclude  that  there  is  a  certain 
amount  of  capital  which  can  be  most  advantageously,  on  the 
whole,  invested  in  the  production  of  any  monopolised  commo- 


66  THE  PRINCIPLES    OP 

dity, — an  amount  less  than  what  would  naturally  be  invested 
in  its  production,  if  all  persons  were  at  liberty  to  engage  in  it, 
— yielding  more  than  the  ordinary  rate  of  profits,  and  main- 
taining prices  at  a  higher  level  than  they  would  naturally 
be  at. 

The  height  to  which  it  is  for  the  advantage  of  the  monopo- 
lists to  raise  prices  and  profits,  by  diminishing  the  supply, 
varies  with  the  nature  of  the  commodity  they  produce.  It 
needs  no  formal  proof  to  be  convinced  that  they  will  be  dis- 
posed to  raise  them  higher,  according  as  this  commodity 
approaches  more  nearly  to  the  character  of  a  necessary  of 
life.  What,  however,  is  not  so  obvious,  although  experience 
makes  it  equally  certain,  is  that  the  profits  of  capital,  very 
frequently,  even  where  luxuries  are  the  objects  of  production, 
increase  in  a  much  greater  ratio  than  the  supply  is  diminished. 
This  is  strikingly  exemplified  by  the  following  instance,  out  of 
many  that  might  be  adduced  from  the  history  of  monopoly. 
The  Dutch  East  India  Company,  when,  through  a  miscalcu- 
lation of  the  demands  of  the  market,  they  had  imported  into 
Holland  too  large  a  quantity  of  spices,  found  it  for  their  inter- 
est to  consign  a  certain  portion  to  the  flames,  rather  than  offer 
the  whole  for  sale ;  the  value  received  for  the  remainder  more 
then  compensating  the  company  for  what  was  burned. 

If,  instead  of  the  exclusive  privilege  of  producing  a  com- 
modity being  granted  to  any  individual,  or  company  of 
individuals,  they  have  the  exclusive  power  to  produce  it  in  a 
particular  manner,  this  manner  being  the  most  advantageous 
or  economical  one,  either  in  consequence  of  the  possession  by 
them  of  some  secret  in  the  arts,  or  of  their  having  a  patent 
right  to  the  sole  use  of  new  and  improved  methods  of  produc- 
tion, or  otherwise,  the  effects  in  regard  to  prices  and  profits 
will  clearly  be  the  same  as  in  the  case  of  their  possessing  an 
entire  monopoly, — with  this  exception,  the  reason  of  which 
is  obvious,  that  they  could  not  raise  prices,  and  of  course 
their  profits,  at  least  for  any  length  of  time,  higher  than  io 


POLITICAL  ECONOMY.  G7 

the  rate  which  would  enable  other  capitalists  to  make  the 
ordinary  profits  in  the  accustomed  modes  of  producing. 

It  may  be  proper  to  mention  here,  as  partaking  in  a  degree 
of  the  nature  of  a  monopoly,  the  advantage  which  those 
parties  have  in  any  market  who  first  engage  in  an  employ- 
ment. There  are  always  extraordinary  expenses  at  the 
outset  in  every  new  undertaking ;  while  some  time  must 
necessarily  elapse  before  the  customers  of  the  producers 
already  established  can  be  induced  to  deal  with  the  competi- 
tors of  the  latter  on  equally  favourable  terms.  The  existing 
producers  may,  moreover,  often  exclude  any  apprehended 
competition  by  temporarily  lowering  their  prices,  and  indem- 
nifying themselves  for  the  temporary  loss  by  raising  prices 
when  competition  has  ceased  to  be  threatened.  Such  a  course 
can,  however,  be  practised  with  effect  only  in  markets  which 
are  very  limited  in  their  nature,  and  more  especially  in  respect 
to  commodities  which,  in  other  and  neighbouring  markets, 
mayj  be  sold  at  a  lower  price,  without  offering  a  motive 
sufficient  for  their  being  imported,  on  account  of  the  expense 
of  transportation. 

A  large  capitalist  has  similar  advantages  too  over  smaller 
capitalists,  in  addition  to  the  greater  economy  with  which  his 
capital^  is  susceptible  in  many  cases  of  being  managed.  He 
can  afford  to  receive  a  diminished  rate  of  profits  for  a  time, 
for  the  sake  of  excluding  competition. 


68  THE   PRINCIPLES    OF 


CHAPTER  XIV. 

OF  RENT. 

Many  branches  of  industry  do  not  yield  the  same  rate  of 
profits  to  all  the  different  portions  of  capital  invested  in  them. 
This  is  always  the  case  when  the  situations  adapted  to  the 
investment  of  capital  are  not  all  equally  favourable  to  pro- 
duction. A  very  striking  instance  of  the  kind  is  furnished  by 
agriculture,  both  on  account  of  the  very  great  diversity  in  the 
quality  of  the  land,  and  the  very  different  degrees  of  facility 
with  which  its  produce  can  be  conveyed  to  market.  And  a 
similar  remark,  differing  only  in  the  extent  of  its  application, 
may  be  made  in  reference  to  the  mines,  to  the  fisheries,  to 
such  manufactures  as  are  produced  in  circumstances  more 
or  less  favourable,  as,  for  example,  such  as  are  produced 
through  the  instrumentality  of  water  power,  and  even  in  refer- 
ence to  trade,  for,  in  every  town  or  village,  there  are  certain 
situations  which  are  regarded,  and  in  reality  are,  the  best  stands 
for  business, — where  the  largest  profits  are  made.  In  all  such 
cases,  it  is  the  capital  last  applied  which  yields  a  rate  of 
profits  in  correspondence,  or  equilibrium,  wdth  the  ordi- 
nary rate  of  profits  in  other  employments  generally  ;  since 
if  it  yielded  less,  it  would,  of  course,  have  been  other- 
wise invested,  and  if  it  yielded  more,  a  greater  amount  of 
capital  would  have  been  invested  together  with  it  in  the  same 
branch  of  production,  so  as,  by  augmenting  the  supply  of  the 
commodity  produced,  to  make  this  supply  more  abundant, 
prices  consequently  lower,  and  thus  to  cause  profits  to  fall  to 
the  ordinary  rate. 

The  last  applied  portion  of  capital  may,  in  general,  be 
supposed  to  be  applied  under  the  most  unfavourable  circum- 
stances.   Take,  for  instance,  the  case  of  the  land.    As  society 


POLITICAL  ECONOMY.  69 

advances,  additional  capital  will  be  applied,  both  to  the  land 
already  cultivated,  and  for  the  purpose  of  taking  new^  land 
into  cultivation.  When  it  is  applied  to  the  former,  every  one 
at  all  acquainted  with  the  nature  of  the  soil  will  at  once 
acknowledge  the  impossibility  of  the  produce  increasing 
proportionally :  the  application  of  a  double  capital  will  not  be 
followed  by  a  double  crop.  On  the  other  hand,  when  new 
land  is  taken  into  cultivation,  the  returns  to  the  capital 
applied  to  it  cannot  be  as  large  as  those  to  the  capital  before 
applied  to  older  land,  or  the  new  would  before  have  had  the 
preference.  This  was  before  passed  by,  either  because  it 
was  of  inferior  fertility,  or  less  favourably  situated  with 
respect  to  a  market.  A  similar  mode  of  reasoning,  too,  will 
apply,  with  a  very  slight  modification,  not  in  any  degree 
affecting  its  force,  to  all  the  other  instances  enumerated,  of 
employments  yielding  unequal  profits  to  the  different  portions 
of  capital  applied  to  them. 

An  exception  of  which  the  proposition  admits, — that  the 
last  applied  capital  is,  at  the  same  time,  that  which  is  applied 
under  the  most  disadvantageous  circumstances, — is  where 
mistakes  in  judgment  occur  on  the  part  of  individuals  when 
investing  their  capital.  Another  is  when  the  situations 
or  sites  where  capital  was  before  applied  have,  since  such 
application,  deteriorated,  and  where,  on  account  of  the 
difficulty  of  transferring  the  capital  already  applied,  this 
continues  for  a  time  invested  as  heretofore,  though  with 
profits  below  the  ordinary  rate.  With  these  exceptions,  and 
they  are  exceptions  of  comparatively  little  practical  conse- 
quence, always  implied,  we  may  consider  the  proposition  to  be 
estabhshed. 

Now  the  natural  price  of  any  commodity  has  been  shewn 
to  be  that  price  which,  after  replacing  the  capital  consumed 
in  producing  it,  will  yield  to  the  capitalists  the  ordinary 
profits.  It  follows,  therefore,  from  what  has  been  stated  that 
the  cost  of  production,   which   determines   the   price  of  a 

10 


70  THE  PRINCIPLES  OF 

commodity,  is  the  cost  of  producing  it  with  the  capital  last 
applied,  or  with  the  capital  applied  under  the  most  disadvan- 
tageous circumstances  in  which  the  commodity  in  question  is 
actually  produced. 

Political  economists  have  found  it  expedient  to  separate 
from  the  profits  received  in  any  employment  that  portion  by 
which  they  may  exceed  in  amount  those  yielded  to  the 
capital  invested  most  disadvantageously  in  the  same  employ- 
ment, and  have  designated  such  excess  by  the  name  of  rent. 
All  land,  consequently,  yields  rent,  excepting  the  land  just 
taking  into  cultivation ;  and  so  too  does  every  portion  of  .capital 
which  is  applied  to  the  land  before  cultivated,  with  the 
exception  only  of  what  is  the  last  applied.  And  having 
separated  from  profits  every  thing  beyond  the  ordinary  rate, 
under  the  denomination  of  rent,  we  are  again  entitled  to  say, 
that  the  ordinary  rate  of  profits  is  yielded  by  every  portion  of 
capital, — the  case  of  a  monopoly  only  excepted ; — and  that 
profits  are,  therefore,  equalised  throughout  all  the  various 
branches  of  industry. 

Inasmuch,  also,  as  the  prices  of  commodities  are  deter- 
mined by  the  cost  of  producing  them  by  means  of  that  portion 
of  capital  which  yields  simply  the  ordinary  profits,  without 
enabling  the  capitalist  to  pay  any  rent,  it  is  a  necessary 
consequence,  that  the  amount  of  rent  paid  by  other  capitalists 
has  no  concern  in  the  determination  of  prices:  and  I  may 
remark  that  this  is  a  point  of  great  importance  to  be  remem- 
bered. 


POLITICAL  ECONOMY.  71 


CHAPTER  XV. 

THE  SUBJECT  OF  REXT  CONTINUED — DISTRIBUTION  OP  THE  WEALTH 
PRODUCED,  AMONG  THE  DIFFERENT  CLASSES  OF  LANDLORDS, 
CAPITALISTS,  AND  LABOURERS. 

The  receivers  of  rent  are  usually  classed  together  by  poli- 
tical economists,  under  the  denomination  of  landlords.  It  is, 
in  fact,  the  proprietor  of  the  land  in  cultivation  (and  an  anijl- 
ogous  remark  may  be  made  in  every  case  of  the  payment  ot 
rent)  who  will  receive  the  rent  paid,  after  deducting  from  the 
net  produce  of  the  land  the  ordinary  profits  of  the  capital 
invested  on  it.  This  is  obvious  if  he  be  likewise  the  owner  of 
the  capital  so  invested.  And  if  he  farm  out  his  land  to  another, 
the  latter  will  pay  for  his  lease  the  ordinary  profits  of  the  cap- 
ital invested  on  the  land  by  the  former,  together  with  the  rent. 

If  more  than  this  were  paid,  the  farmer  would  not  have  a 
sufficient  motive  for  taking  the  lease ;  for  he  will  not  receive, 
in  addition  to  the  wages  of  his  labour,  the  ordinary  profits  of 
the  capital  he  may  himself  employ.  The  farmer  will  not  pay 
less  than  the  amount  stated,  because  he  would  then  make  more 
than  the  ordinary  profits ;  and  others  would,  of  course,  be 
found  wiUing  to  make  a  higher  offer  for  the  lease  to  the  land- 
lord. So  that,  at  all  events,  the  landlord,  or  proprietor  of  the 
land,  receives  the  rent :  and  it  is  worthy  of  notice  that  he  does 
so,  not  as  a  compensation  for  any  expenditure  incurred  by 
him  upon  the  land  in  bringing  it  into  cultivation,  or  subse- 
quently improving  it, — on  all  these  he  receives  profits, — but  as 
a  compensation  for  the  use  of  the  natural  powers  of  the  soil. 

Rent,  as  it  is  commonly  understood,  is  not  to  be  confounded 
with  the  acceptation  of  this  term  in  political  economy.  When 
one  person  pays  to  another  a  certain  sum,  say  500  dollars  per 
annum,  for  the  lease  of  a  farm,  this  sum  is  usually  called  its 


72  THE  PRINCIPLES  OF 

rent ;  whereas,  according  to  the  definition  which  I  have  given 
of  the  term  rent,  it  is  very  possible  that  only  a  small  part  of 
the  sum  just  mentioned  is  entitled  to  be  so  denominated ;  and 
the  remainder  may,  therefore,  constitute  the  profits  of  the 
capital  invested  on  the  land. 

It  may  be  difficult,  and  frequently  even  impossible,  to  distin- 
guish accurately  in  a  particular  case  between  what  is  rent  and 
what  is  profits.  But  the  difficulty  is  not  greater  than  is  often 
that  of  distinguishing  between  profits  and  wages.  Some 
tradesmen,  apothecaries  for  example,  are  supposed  by  most 
persons  to  make  more  than  the  ordinary  profits ;  when,  in 
reality,  the  greater  part  of  what  is  so  styled  is,  properly 
speaking,  the  wages  of  the  labour  employed.  Such  occa- 
sional practical  difficuhies  or  inconveniences,  in  the  appli- 
cation of  the  distinctions  in  question,  will  not  be  found  to 
detract  from  their  utility,  or  from  the  soundness  of  the  con- 
clusions to  which  we  shall  be  led. 

Here  it  will  not  be  uninteresting,  or  unimportant,  to  note 
the  manner  in  which  the  products  of  labour  are  distributed 
among  the  three  different  classes,  of  landlords  or  proprietors, 
— capitalists, — and  labourers.  Since  it  may  be  assumed  that 
there  is  nothing  produced  without  the  use  or  aid  of  same  capital, 
or  advances  made  by  the  capitalists  to  the  labourers  in  their 
employ,  it  is  manifest  that  the  whole  produce  of  labour  comes, 
in  the  first  place,  into  the  hands  of  the  capitalists.  They  then 
distribute  to  the  landlords  their  share  of  it,  and  also  pay  to 
the  labourers,  not  any  share  of  it  to  which  the  latter  are  enti- 
tled, but  their  wages,  or  compensation  in  advance  for  their 
labour,  which  is  to  be  applied  anew  in  the  business  of  pro- 
duction. 

Each  of  these  classes  may  of  course,  on  receiving  their 
portion  of  the  wealth  produced,  exchange  it  for  money,  or  for 
any  other  commodities  which  they  prefer  to  have  in  their 
possession ;  and  the  possession  of  any  specific  portion  of  what 
is  produced,  or  the  right  of  possessing  it,  may  thus  be  trans- 


POLITICAL  ECONOMY.  73 

ferred  from  individual  to  individual  many  times  before  it  is 
actually  consumed, — and  consumed  either  productively,  or 
unproductively. 

I  may  remark  too  that,  notwithstanding  political  economists 
speak  of  the  separate  classes  of  landlords,  capitalists,  and 
labourers,  the  same  person  may  unite  in  himself  the  characters 
of  landlord,  of  capitaHst,  and  of  labourer,  or  of  any  two  of 
them.  This,  however,  no  more  invalidates  the  propriety  of 
such  a  classification  than  that  a  physician,  happening  occa- 
sionally to  be  versed  in  theological  learning,  should  render  it 
inexpedient  to  draw  any  line  of  distinction  between  theology 
and  medical  science. 

Instances  are  continually  presented  of  capitahsts  who  labour 
themselves  in  superintending  the  application  of  their  capital 
to  production.  The  farmer,  who  is  the  owner  of  the  land 
which  he  cultivates,  is  manifestly  at  once  both  landlord  and 
capitalist.  And  this,  it  is  equally  manifest,  will  not  prevent 
him  from  being  at  the  same  time  engaged  in  labouring,  if  he 
so  choose. 

The  land  which  pays  rent  will  have  a  greater  exchangeable 
value  than  the  capital  which  has  been  invested  upon  it. 
Suppose  this  capital  to  amount  to  $10,000 ;  and  let  the 
rate  of  profits  be  10  per  cent.  Now  if  we  assume  the  rent 
of  the  land  to  be  $200,  it  will  follow  that  the  farmer  who 
leases  it  will  have  to  pay  to  the  landlord  $1200  per 
annum, — without  taking  into  consideration  what  he  would 
have  to  pay,  in  order  to  replace  the  wear  and  tear  of  the 
capital  invested.  The  value  of  the  land  will  therefore  amount 
to  a  capital  yielding  $1200  profit,  that  is,  on  the  sup- 
positions which  have  been  made,  to  a  capital  of  12,000 
dollars. 

But  if  we  regard  the  capital  invested  in  the  land,  viz. 
$10,000,  as  the  product  of  labour,  in  accordance  with 
that  definition  of  wealth  which  makes  it  to  consist  in  "  the 


74  THE  PRINCIPLES  OF 

products  of  labour,"  would  it  be  equally  proper,  it  may 
here  be  asked,  to  regard  as  such  the  remaining  $2000 1 
Or  ought  not  this  portion  of  wealth  to  be  viewed  rather  as 
having  been  produced  independently  of  any  direct  applica- 
tion of  labour,  and  in  consequence  merely  of  the  existence  of  a 
right  of  property  in  land  1  If  so,  we  shall  have  presented  to  us 
such  an  extensive  exception  to  the  proposition  that  wealth 
consists  of  the  products  of  labour,  as  to  preclude  us  from 
identifying  it  at  any  time  with  those  products.  To  the 
question  just  put,  I  answer,  however,  in  the  negative.  A 
moment's  reflection  will  enable  the  reader  to  perceive 
that  rent  differs  in  no  respect  in  its  relation  to  labour  from 
any  other  portion  of  the  wealth  produced,  excepting  that  it 
has  been  produced  under  comparatively  more  advantageous 
circumstances,  —  circumstances,  nevertheless,  precisely  the 
same  in  kind  with  those  in  which  what  remains  to  the 
farmer,  after  paying  his  rent,  is  produced.  No  one  will  deny 
this  remainder  to  be  the  product  of  labour :  and,  therefore,  no 
one  can  consistently  deny  rent  to  be  likewise  the  product  of 
labour. 


CHAPTER  XVI. 


THE   DIFFERENT  MODES   IN  WmCH  THE  COST  OF  PRODUCTION,  AND 
THEREFORE  PRICES,  MAY  BE  MADE  TO  VARY. 

To  return,  for  a  short  time,  to  the  subject  of  prices.  They 
have  been  shewn,  it  will  be  recollected,  to  depend,  in  the  case 
of  every  commodity,  on  the  cost  of  producing  it,  by  means  of 
that  portion  of  capital  which  pays  no  rent.     And  it  will  also 


POLITICAL  ECONOMy.  75 

be  recollected  that,  when  the  price  at  which  any  commodity- 
is  sold  is  just  such  as  to  replace  the  capital  consumed  in  pro- 
ducing it,  and  to  yield  to  the  capitalist  the  ordinary  profits, 
it  is  said  to  repay  the  cost  of  production.  It  is  interesting  to 
trace  the  different  modes  in  which  this  cost,  and  consequently, 
the  price  of  the  commodity  as  dependent  upon  it  (I  speak  of 
course  of  natural  price)  can  be  made  to  vary.  I  shall  state 
the  variations  in  question,  with  their  causes,  in  reference  to 
a  consequent /aZ/  of  prices  ;  and  the  causes  which  are  calcu- 
lated to  produce  a  change  of  an  opposite  description,  will 
afterwards  be  manifest  to  every  one. 

But  before  I  do  this,  I  shall  remark  that  where  a  number  of 
causes  either  act  together,  or  are  capable  of  doing  so,  the 
only  mode  in  which  a  satisfactoiy  theory  can  be  deduced,  is 
to  trace  the  consequences  resulting  from  the  action  of  each 
cause  separately,  abstracting  from  all  consideration  whatever 
of  the  others ;  and  when  that  action  is  understood,  we  shall 
likewise  know  what  the  effects  actually  to  be  produced  will 
be,  when  two  or  more  of  them  act  together.  It  may  not  be 
wholly  unnecessary,  too,  to  caution  the  reader,  not  merely  in 
reference  to  what  is  immediately  to  follow,  but  likewise 
throughout  the  present  treatise,  lest  he  should  too  hastily 
generalise  the  inferences  drawn  when  the  operation  of  a 
single  cause  alone  has  been  considered,  and  apply  them 
inadvertently  under  every  diversity  of  circumstances. 

The  cost  of  production  may  be  separated  into  the  two 
following  elements ;  the  capital  consumed  in  producing  a 
commodity,  and  the  ordinary  profits  on  the  wliole  of  the  cap- 
ital employed.  Hence  prices  will  fall,  either  when  the  capital 
consumed,  or  when  the  amount  of  profits  received,  is  dimin- 
ished. 

Let  us,  however,  analyse  somewhat  more  in  detail  the 
circumstances  which  lead  to  a  fall  of  prices.  They  will  fall, 
first,  when,  every  thing  else  remaining  unchanged,  the  amount 
of  capital  employed  is  less  than  it  was  before.    When  this 


76  THE  PRINCIPLES  OF 

takes  place,  it  is  plain  that  prices  must  fall,  as  well  because 
of  the  diminished  amount  of  capital  consumed,  as  on  account 
of  the  profits  of  the  capitalist  being  necessarily  reduced 
exactly  in  proportion  to  the  diminution  of  the  capital  em- 
ployed. 

Secondly,  the  same  effect  will  be  the  consequence  of  a  sub- 
stitution oi  fixed  for  circulating  capital.  The  latter  was 
defined  to  be  composed  of  every  specific  portion  of  capital 
which  was  wholly  consumed  in  the  act  or  process  of  pro- 
duction,— and  the  former  to  consist  of  those  specific  portions 
of  capital  which  are  only  subjected,  during  the  production  of 
a  commodity,  to  wear  and  tear.  The  substitution  of  fixed  for 
circulating  capital,  therefore,  necessarily  implies  a  diminished 
consumption  of  capital,  and  a  consequent  fall  of  prices.  To 
put  this  in  the  most  striking  point  of  view,  let  us  compare  the 
two  extreme  cases  of  a  commodity  produced  altogether  by 
means  of  circulating  capital,  and  of  another  produced  by 
capital  absolutely  fixed.  And  for  the  sake  of  greater  precision, 
let  us  estimate  the  capital  employed  at  a  particular  value,  say 
^10,000,  with  the  rate  of  profits  at  10  per  cent.  In  the  first 
mentioned  case,  what  is  produced  will  be  sold  for  il  1,000; 
and  in  the  last  mentioned,  for  only  $1000  ;  these  being  the 
sums  which  will,  in  the  two  cases  respectively,  repay  the 
cost  of  production.  The  price  of  it  will  also  obviously  range 
from  $1000  to  $1 1,000,  according  to  the  greater  or  less  degree 
of  the  fixedness  of  the  capital,  by  the  aid  of  which  it  is 
produced. 

Thirdly,  the  time  may  be  diminished  during  which  a  given 
amount  of  capital  is  employed  in  production.  When  this 
occurs  prices  will  fall,  in  consequence  of  the  diminution  of 
the  profits  required  to  be  paid. 

Fourthly,  prices  will  fall  from  any  previous  reduction  of 
wages ;  for  since  wages  constitute  a  portion  of  capital,  such 
reduction  will  be  tantamount  to  the  requiring  of  the  employ- 
ment, in   the  production  of  any  particular  article,  of  less 


POLITICAL    ECONOMY.  77 

capital  than  before  ; — and  the  proportion  of  circulating  to  fixed 
capital  will  likewise  have  become  less. 

And  lastly,  if  we  suppose  the  rate  of  profits  to  be  dimin- 
ished, the  amount  of  profits  to  be  received  in  any  case  will 
also  be  diminished ;  and,  for  this  reason,  agreeably  to  what 
has  been  stated,  prices  must  be  lowered. 

More  than  one  of  the  causes  which  are  thus  capable  of 
effecting  a  fall  of  price  may  act  at  the  same  time,  or  may 
cooperate  with  some  of  the  opposite  causes,  the  tendency  of 
which  is  to  raise  prices, — with  this  exception,  that,  so  long 
as  all  other  circumstances  remain  the  same,  (including  of 
course  among  these  circumstances,  the  productiveness  of 
labour,)  a  general  fall  of  wages  is  inconsistent  with  a  contem- 
porary general  fall  of  profits  ;  nor  is  it  then  possible  for  wages 
and  profits  to  rise  together.  On  the  contrary,  as  wages  fall 
profits  must  necessarily  rise,  and  vice  versa. 

This  will  be  apparent  if  we  look,  for  a  moment,  at  a  parti- 
cular case  or  two.  Let  the  capital  of  an  individual  be  assumed 
to  consist  of  $5000  in  the  form  of  wages,  and  of  $5000  of  a 
diflferent  description, — profits  being  10  per  cent.  The  whole 
profits  received  will,  therefore,  amount  to  $1000.  Now  let 
wages  fall  5  per  cent.  The  consequence  will  be,  that,  to 
employ  the  same  labour  as  before,  and  to  produce  the  Very 
same  commodities,  a  capital  of  only  $9750  w^ill  be  required, 
only  $4750  having  to  be  paid  for  wages,  instead  of  $5000. 
There  is  also  $250  less  of  capital  consumed  to  be  replaced  ; 
and  this  amount  of  what  is  produced  will  hence  be  added  to 
the  clear  profits,  and  will  raise  them  from  $1000  to  $1250; 
so  that  what  is  taken  from  wages  is  necessarily  transferred  to 
profits. — Again,  let  wages  amount  to  $4000,  and  every  other 
species  of  capital  employed  to  $6000.  When  wages  fall  5 
per  cent,  the  requisite  capital  to  be  employed  will  be  dimin- 
ished, as  in  the  previous  case,  on  account  of  the  diminution  of 
the  whole  amount  of  wages  to  be  paid.  That  capital  will 
now   be  only  $9,800,  instead  of  $10,000 ;   and  profits  will 

11 


78  THE  PRINCIPLES  OF 

amount  to  $1200,  instead  of  $1000.  In  comparing  together 
the  two  cases  we  have  been  considering,  the  augmentation  of 
profits  resuhing  from  the  same  proportional  fall  of  wages  will 
appear  to  be  not  only  unequal,  it  being  in  the  one  $250,  and 
in  the  other  $200,  but  such  as  to  render  the  rate  of  profit 
different,  in  reference  to  the  amount  of  capital  employed: 
$1250  profit  on  $9750  is  obviously  at  a  higher  rate  than 
$1200  on  $9800.  And,  speaking  generally,  the  new  rate  of 
profits  will  be  lower  according  as  less  labour  is  put  in  motion 
by  a  given  capital.  But  such  a  state  of  things  cannot  con- 
tinue :  a  transfer  of  capital  from  the  less  to  the  more  profitable 
employments  will  take  place,  until  the  rate  of  profits  in  all 
shall  be  equaUsed.  But  the  ordinary  profits  in  all  must  then, 
it  is  clear,  be  greater  than  they  were  before  the  supposed  fall 
of  wages. 

So  much  in  respect  to  the  effects  of  a  fall  of  wages  on 
profits.  And  it  may  be  shewn,  in  a  similar  manner,  mutatis 
mutandis,  that  a  rise  of  wages  and  a  fall  of  profits  will  like- 
wise accompany  each  other. 

This  rise  of  wages,  or  of  the  rate  of  profits,  while  the  other 
at  the  same  time  falls,  will  affect  the  prices  of  commodities 
very  differently,  according  to  the  degree  in  which  wages  or 
profits  enter  into  the  cost  of  production.  And  it  will,  in 
general,  be  true,  that  prices  will  suffer  proportionally  more 
alteration  from  a  given  change  in  the  rate  of  wages,  and  less 
alteration  from  the  corresponding  change  in  the  rate  of  profits, 
where  the  circulating  predominates  over  the  fixed  portion  of 
the  capital  employed.  As  these  two  effects  are  always  in 
opposite  directions,  it  is  also  plain  that  the  prices  of  some 
commodities  will  rise,  while  others  at  the  same  time  fall ;  and 
their  exchangeable  values,  when  compared  with  one  another, 
will  be  made  to  vary. 

In  all  that  has  been  above  said  concerning  the  manner  in 
which  the  cost  of  production,  and  prices  in  consequence,  may 
be  made  to  vary,  the  value  of  money  has  been  tacitly  assumed 


POLITICAL  ECONOMY.  79 

to  remain  unaltered.  If  any  change  should,  however,  take 
place  in  the  mean  time  in  respect  to  that  value,  so  that  a  given 
sum  of  money  should  become  more  or  less  efficient  in  pro- 
curing the  necessaries  and  luxuries  of  life,  this  will  in  no 
degree  affect  the  correctness  of  our  conclusions ;  since  any 
such  change,  as  has  been  before  explained,  will  itself  raise  or 
lower  the  prices  of  all  things  in  the  very  same  proportion. 

The  necessary  connexion,  on  the  supposition  of  no  simul- 
taneous augmentation  of  the  productiveness  of  labour,  of  a 
fall  of  wages  with  a  rise  of  profits,  as  well  as  the  rise  of 
prices  which  would  sometimes  be  consequent  upon  a  fall  in 
the  rate  of  wages,  being  once  distinctly  understood,  the 
inconsistency  will  be  apparent  of  attributing,  as  some  persons 
are  apt  to  do,  the  low  prices  of  British  goods,  when  compared 
with  the  same  description  of  goods  of  American  manufacture, 
chiefly  to  the  low  rate  of  wages  in  Great  Britain,  instead  of 
attributing  them  to  the  comparative  lowness  of  wages  and 
profits,  taken  together.  Were  it  possible,  indeed,  to  raise  the 
wages  of  labour  at  once  in  that  country,  by  the  interference 
of  the  government,  or  in  any  other  manner,  in  as  much  as 
this  could  only  be  accompUshed  at  the  expense  of  profits,  it 
will  follow  from  what  has  been  stated,  that  the  prices  of  all 
those  commodities  which  are  the  products  chiefly  of  fixed 
capitals,  instead  of  rising  in  value,  would  be  sold  at  a  still 
cheaper  rate ;  and  Great  Britain  would,  in  consequence,  be 
enabled  to  export  them  abroad  with  a  still  greater  probabiUty 
than  before  of  their  being  preferred  to  the  similar  products  of 
other  nations  in  the  market  of  the  world.  I  may  add  here 
that,  since  most  of  the  British  goods  which  are  imported  into 
the  United  States  are,  in  fact,  the  products  in  a  very  conside- 
rable degree  of  fixed  capitals,  a  riao^  and  not,  as  is  very  - 
commonly  supposed,  a  lii^  of  wages  in  Great  Britain,  would 
cooperate  with  a  protecting  tariff,  in  the  encouragement  of 
our  manufactures. 


80  THE  PRINCIPLES  OF 


CHAPTER  XVII. 

THE  PRICE,  OR  EXCHANGEABLE  VALUE,  OF  ANV  THING  CANNOT  BE 
REGARDED  AS  DETERMINED  IN  EVERY  INSTANCE  BY  THE  QUAN- 
TITY OF  LABOUR  APPLIED,  FROM  FIRST  TO  LAST,  IN  PRODUCING 
IT. 

I  SHALL  conclude  w^hat  I  have  to  say  on  the  subject  of 
prices,  and  exchangeable  values  generally,  by  an  inquiry  as 
to  the  correctness  of  a  theory,  which  is  a  favourite  one  with 
some  political  economists  of  the  highest  order ;  although  no 
practical  consequences  of  any  moment  depend  upon  its  being 
true  or  not. 

The  writers  to  whom  I  allude  have  attempted  to  shew  that 

the  price  of  a  commodity  is  always  in  proportion  to   the 

amount  of  labour  necessary,  from  first  to  last,  to  produce  it ; 

but,  in  my  opinion,  have  attempted  to  do  so  unsuccessfully. 

Indeed,  the  fact  of  the  occurrence  of  a  single  instance  of  an 

augmentation  of  price  without  the  instrumentahty  of  human 

labour,— the  only  species  of  labour  with  which  we  are  here 

concerned, — seems  to  me  to  be  quite  sufficient  to  evince  the 

fallacy  of  the  theory  in  question.   Such  an  instance  is  afforded 

by  wines  that  improve  from  the  mere  effects  of  age.     The 

merchant  who  keeps  them  on  hand  must,  of  course,  expect  to 

receive  the  ordinary  profits  of  capital ;  and  the  price  of  the 

wine  will  be  augmented  by  the  amount  of  those  profits.     If 

we  now  suppose  that,  by  means  of  some  contrivance  or  other, 

and   without  increasing  the  first   cost   of  the   wine   to   the 

merchant,  the  same   improvement  in   its  quality  as   before 

could  be  effected  in  half  the  time,  it  is  clear,  on  the  principles 

already  explained,  that  the  price  of  such  wine  must  necessarily 

fall,  so  as  to  exceed  its  original  cost  only  by  the  profits  upon 

it  for  the  time  thus  diminished ;  and  we  would  then,  conse- 


POLITICAL  ECONOMY.  81 

quently,  have  the  price  of  an  article  lowered,  notwithstanding 
the  same  quantity  of  labour,  neither  more  nor  less,  had  been 
applied  to  its  production. 

But  the  instance  I  have  adduced  is  not  a  solitary  one  of  the 
kind ;  others,  though  perhaps  not  quite  so  striking,  are 
presented  to  us  in  the  various  arts  of  life,  whenever  improve- 
ments take  place  of  a  nature  to  enable  a  given  quantity  of 
labour  to  be  productive  of  a  commodity  in  a  shorter  period  of 
time  after  it  is  applied  than  before.  Let  us  look  for  a  moment 
at  the  art  of  tanning.  It  is  here  impossible  for  human 
labour,  no  matter  what  amount  of  it  may  be  exerted,  to 
complete  the  process  of  production  in  less  than  a  certain 
period.  The  reason  is  that  the  materials  to  which  that 
labour  is  applied  must,  in  different  stages  of  the  process,  be 
subjected  to  the  slow  and  separate  operation  of  the  powers  of 
nature,  using  this  expression  in  contradistinction  to  the  powers 
exerted  by  man  in  the  application  of  his  labour.  Under 
these  circumstances,  it  must  be  evident  that  the  price  of 
leather  can  be  made  to  fall  in  either  of  two  ways, — by 
lessening  the  amount  of  labour  required,  from  first  to  last,  to 
produce  it,  and  consequently  of  the  wages  to  be  paid,  or  by 
abridging  the  time  which  elapses  from  the  applying  of  any  por- 
tion of  the  labour  employed  till  the  last  act  of  production 
be  performed.  I  mean  this,  it  needs  hardly  be  mentioned,  on 
the  supposition  of  the  rates  of  wages  and  profits  remaining 
unaltered.  Should  the  time  just  mentioned  be  diminished, 
while  the  labour  required  continues  the  same,  the  instance 
under  consideration  will  be  perfectly  analogous  to  that  of  the 
wines  before  spoken  of:  in  both  instances  alike,  prices  will 
have  been  affected  by  the  diminution  of  the  profits  to  be  paid. 
And  they  will,  in  fact,  never  be  determined  exclusively  by  the 
amount  of  the  labour  exerted,  except  in  the  scarcely  suppos- 
able  case  of  a  commodity  being  produced  by  it  without  any 
advances  whatever  on  the  part  of  the  capitaHst. 

There  is  then  another  element  of  price  besides  the  quantity 


82  THE  PRINCIPLES  OF 

of  labour  employed,  from  first  to  last,  in  producing  a  com- 
modity, to  wit,  the  time  that  elapses  from  the  application  of 
the  several  portions  of  labour  until  the  production  of  it  in  its 
complete  state.  But  it  has  been  objected  that  although  labour 
has  power  to  produce,  it  is  impossible  to  understand  how  such 
a  power  can  be  predicated  in  reference  to  time,  which  is  not 
a  real  entity,  but  merely  a  mode  of  existence.  No  such 
power  is,  howevei',  intended  to  be  ascribed  to  it.  Human 
labour,  and  natural  agents,  are  the  only  powers  concerned  in 
the  business  of  production.  The  former  of  these,  it  may  be 
observed,  is  incapable  of  exerting  itself  without  the  co-opera- 
tion of  the  latter ;  and  it  is,  therefore,  impracticable,  in  any 
case  whatever  of  such  co-operation,  to  point  out  how  much  is 
man's  workmanship,  and  how  much  nature's.  It  would  be 
wrong  to  regard  that  time,  which  has  been  stated  to  have  an 
influence  on  prices,  to  be  in  any  manner  indicative  of  the 
degree  in  which  natural  agents  co-operate  with  man.  Nor  is 
this  a  matter  of  any  the  least  moment  in  relation  to  our 
present  inquiry :  so  long  as  a  certain  time  must  necessarily 
intervene  between  the  application  of  any  portion  of  labour 
and  the  completion  of  a  commodity,  just  for  so  long  a  time 
must  profits  be  realised  on  the  wages  advanced,  and  will  the 
consequent  effect  be  produced  on  prices,  whether  the  materi- 
als to  which  the  labour  is  applied  be  operated  on,  in  the  mean 
time,  by  natural  agents,  so  as  to  augment  their  utility,  or 
whether  they  continue  in  the  same,  or  be  even  brought  into  a 
worse,  condition.  The  amount,  for  example,  expended  in 
building  the  foundation  and  walls  of  a  house,  will  be  entitled 
to  quite  as  much  of  profits,  and  will  have  an  influence  on  its 
value  when  it  is  completed,  equally  great,  as  if,  instead  of  their 
remaining  nearly  in  an  unaltered  state  while  awaiting,  so  to 
speak,  the  completion  of  the  interior  structure,  they  had  had 
their  utility  augmented,  in  a  ten-fold  degree,  by  the  operation 
of  natural  agents. 

When   the    time,   of  which    I    have    been    speaking,    is 


POLITICAL  ECONOMr.  83 

said  to  determine  a  certain  amount  of  profits  on  the  capital 
expended  in  the  employment  of  labour,  or,  what  is  at  present 
the  same  thing,  on  the  wages  of  labour,  those  profits  are  not 
to  be  understood  as  being  in  exact  proportion  to  the  time.  It 
is  evident  that  this  is  never  the  case  with  the  profits  of  capital. 
Whatever  may  be  the  amount  of  profits  on  a  given  portion  of 
it  for  a  year,  if  received  at  the  expiration  of  that  period, 
someiohat  less  than  half  as  much  will  be  the  proper  remunera- 
tion for  its  use  during  six  months ;  for  such  remuneration 
may  then  itself  be  employed  productively.  The  case  is 
entirely  similar  to  that  of  the  interest  of  money,  with  respect 
to  which  every  one  knows,  that  a  half  per  cent,  at  the  end  of 
every  month  is  preferable  to  six  per  cent,  at  the  end  of  a  year. 
This  view  of  the  relation  of  profits,  and  consequently  of  prices, 
to  the  time  during  which  capital  is  employed,  before  a  return 
is  made  to  it,  is  entirely  inconsistent  with  the  supposition, 
that  those  who  deny  the  exclusive  influence  on  prices  of  the 
quantity  of  labour  applied,  from  first  to  last,  in  the  production 
of  a  commodity,  ascribe  to  mere  time  a  certain  occult  or 
mysterious  power,  which,  from  its  very  nature,  it  cannot 
possibly  possess.  If  they  in  reality  did  so,  it  is  very  obvious 
that  they  would  also  maintain,  for  they  would  be  di'iven  to 
maintain,  that  such  power  is  always  exerted  in  proportion 
exactly  to  the  time  which  is  supposed  to  exert  it ;  since  every 
efl^ect  is  always  proportional  to  its  cause. 

It  may,  nevertheless,  be  conceded  that  the  prices  of  com- 
modities are  much  more  frequently  lowered  by  the  diminution 
of  the  quantity  of  labour  which  is  requisite  for  producing 
them,  or,  what  is  the  same  thing,  by  a  given  quantity  of  labour 
having  been  rendered  more  productive,  than  by  a  diminution 
of  the  time  required  in  production.  Improvements  of  the  latter 
description  we  know  from  experience  to  be  confined  within 
comparatively  very  narrow  limits  ;  while,  on  the  other  hand, 
improvements  of  a  labour-saving  nature  have  been  introduced, 
more  especially  in  our  own  age,  with  extraordinary  rapidity. 


84  THE   PRINCIPLES  OP 

and  to  a  prodigious  extent.  Hence  I  would  not  object  to  the 
language  of  those  writers  who,  when  speaking  generally, 
regard  all  improvements  in  the  arts  as  if  they  resulted  from  a 
greater  productiveness  of  labour;  and  indeed,  I  would  not 
hesitate  myself,  after  the  remarks  which  have  been  now  made, 
to  do  the  like,  merely,  however,  in  order  to  avoid  the  necessity 
of  employing  a  multiplicity  of  words. 


POLITICAL    ECONOMY.  85 


BOOK  SECOND. 


ON  THE  TENDENCY  OF  RENTS,  PROFITS,  AND  WAGES,  TO  RISE 
OR  FALL  IN  THE  PROGRESS  OF  SOCIETY ;— TOGETHER  WITH 
THE  LAWS  WHICH  DETERMINE  THE  NUMBERS  OF  A  PEOPLE. 


CHAPTER  I. 

EFFECTS  OF  THE  DIMINISHING  RETURNS  FROM  THE  LAND  UPON  THE 
EXCHANGEABLE  VALUE  OF  THE  DIFFERENT  PRODUCTS  OF  INDUS- 
TRY, AND  UPON    RENTS, OBJECTIONS  TO  THE  THEORY  OF  RENT 

REFUTED. 

In  the  preceding  book,  I  have  defined,  with  as  much  preci- 
sion as  was  in  my  power,  the  principal  technical  terms  of 
political  economy.  I  have  also,  as  I  flatter  myself  explained 
distinctly  the  nature  of  price  and  of  exchangeable  value,  as 
determined  by  the  cost  of  production ;  together  with  the 
manner  in  which  they  will  be  necessarily  subjected  to  change, 
in  consequence  of  any  of  the  previous  changes  of  which  that 
cost  is  susceptible. 

These  are  points  of  so  much  importance  as  to  lie  at  the  . 
foundation  of  a  proper  understanding  of  every  branch  of  our 
general    subject ;    and  we  are  now  prepared  to  enter  with 
advantage  into  an  examination  of  the  laws  that,  in  the  pro- 
gress of  society,  determine  the  rates  of  the  increase  of  popu- 

12 


86  THE  PRIXCIPLES  OP 

lation  and  of  the  accumulation  of  wealth,  and  that  regulate 
the  proportions  in  which  the  products  of  industry  are  distri- 
buted among  the  different  classes  of  landlords,  capitalists, 
and  labourers.  In  prosecuting  this  object,  I  shall  begin  by 
supposing  the  various  causes  which  have  a  tendency  to 
produce  an  alteration  in  the  condition  of  society  in  any 
country,  and,  of  course,  the  effects  actually  produced  by 
them,  to  continue  the  same  in  every  respect  as  at  present  ; 
with  the  exception  of  the  changes  which  may  result,  either 
directly  ^om  an  increase  of  the  population,  or  in  consequence 
of  the  necessary  operation  of  such  increase,  in  giving  occa- 
sion to  a  greater  or  less  intensity  of  action  on  the  part  of 
other  causes  of  change.  And  the  inquiry  at  once  presenting 
itself  for  consideration  is : — Are  there,  in  fact,  any  circum- 
stances in  the  nature  of  things  which,  on  the  supposition  I 
have  made,  will  necessarily  affect  the  productive  powers  of 
labour,  for  the  better  or  the  worse,  or  will  induce  a  rise  or  fall 
of  rents,  profits,  or  wages  1 

Such  a  circumstance  is  to  be  found  in  the  nature  of  the 
land,  and  its  Hmited  extent.  The  diflferent  portions  of  it  are 
not  of  the  same  degree  of  fertility,  nor  equally  favourably 
situated  with  respect  to  a  market ;  and  the  returns  yielded,  on 
the  application  to  the  same  land  of  equal  successive  portions 
of  capital  and  labour,  will  be  continually  diminishing.  Hence, 
as  has  been  already  shewn,  the  origin,  and  the  inequality,  of 
rents  ;  hence  also,  it  is  quite  obvious  that  an  increased  popu- 
lation will  be  unable  to  produce  proportionally  as  much  as 
before. 

What  has  just  been  said,  in  reference  to  the  diminishing 
returns  from  the  land  in  agriculture,  the  reader  will  perceive 
is  equally  applicable  in  reference  to  the  mines,  the  fisheries, 
and,  in  short,  to  all  employments  where  rents  are  paid.  And 
I  am  desirous  that  this  applicability  of  my  argument  will 
hereafter  be  borne  in  mind  in  all  similar  cases,  without  any 
farther  mention  being  made  of  it.     By  thus  being  enabled  to 


POLITICAL    ECONOMY.  87 

consider  the  land  as  the  representative  of  a  class,  I  shall  have 
it  in  my  power  to  express  myself  more  simply,  and  more  con- 
cisely. 

Another  consequence,  resulting  from  the  diminishing 
returns  from  the  land,  is  that  the  exchangeable  value  of  agri- 
cultural products  will  rise  in  comparison  with  that  of  manu- 
factured ones ;  for  the  cost  of  producing  the  former  will  now 
be  comparatively  greater  than  that  of  producing  the  latter. 
That  such  will  be  the  fact  will  appear  from  the  consideration 
that  there  is  no  reason  why  a  given  capital,  constituted  in  the 
same  manner,  and  employed  during  the  same  time,  should 
not  be  as  efficient  to  produce  the  same  quantity  in  manufac- 
tures as  formerly,  except  the  increased  cost  of  the  agricultural 
raw  material  to  which  the  labour  of  the  artisan  is  applied. 

As  additional  capital  and  labour  are  applied  to  the  land, 
rents  will,  from  the  cause  the  effects  of  which  we  are  now 
tracing,  be  continually  rising.  The  proprietors  of  the  land 
will  receive  a  larger  and  a  larger  share  of  the  produce  of 
the  soil.  To  make  this  as  clear  as  I  can,  let  all  the  land  of  a 
country  be  supposed  to  consist  of  say  ten  different  kinds,  in 
relation  to  the  circumstances  which  would  invite  to  its  being 
taken  into  cultivation  ;  having  regard  as  well  to  favourable- 
ness of  situation  with  respect  to  a  market,  as  to  fertility.  Now 
so  long  as  the  best  land.  No.  1,  alone  is  taken  into  cultivation, 
there  will  be  no  rent ;  the  whole  net  produce  will  be  profits. 
But  as  soon  as  the  next  quality.  No.  2,  is  cultivated,  rent  will 
begin  upon  No.  1 ;  and  it  will  amount  to  the  difference  of  the 
produce  of  the  two  kinds  of  land.  No.  2  will  yield  the  capi- 
talist the  ordinary  profits:  No.  1  will,  besides  those  profits, 
pay  rent.  When  capital  is  invested  on  No.  3,  rent  will 
begin  on  No.  2,  and  will  amount  to  the  excess  of  the  net 
produce  derived  from  it  above  that  derived  from  No.  3.  The 
rent  paid  by  No.  1  will  now,  it  is  manifest,  again  rise,  so  as  to 
be  equal  to  the  excess  of  its  produce  over  that  of  No.  3,  instead 
of  the  excess  of  it  over  that  of  No.  2.     And  so   on  when 


88  THE  PRINCIPLES    OP 

numbers  4,  5,  6,  &c.  are  taken  into  cultivation.  The  same  mode 
of  exposition  may  be  applied  to  the  successive  investments 
of  capital  on  the  land  already  cultivated ;  numbers  1,  2,  3, 
&c.  denoting  the  equal  portions  of  capital  invested  (because 
thus  successively  invested)  under  continually  more  and  more 
disadvantageous  circumstances.  It  must  be  likewise  evident 
that  our  reasoning  will  not  be  the  less  accurate,  if,  instead  of 
ten,  we  suppose  the  number  of  our  classes  to  be  any  other 
than  ten,  or  even  to  be  multiplied  indefinitely,  so  as  to  accord 
with  the  real  state. of  the  facts,  when  scarcely  any  two  por- 
tions of  land  are  precisely  in  the  same  circumstances  of 
fertility  or  situation.  The  proposition  advanced  may,  there- 
fore, be  considered  as  established,  in  so  far  as  the  rent  of  land 
is  to  be  estimated  by  the  share  of  its  produce  which  goes  to 
the  landlord.  But  since,  as  has  been  explained,  the  exchange- 
able value  of  a  given  portion  of  that  produce  will  have  been 
augmented,  rents  will  rise  on  this  account  also.  The  owners 
of  the  land  will,  therefore,  have  a  larger  share  of  the  whole 
produce  of  labour  ;  and  their  condition  will  be  a  continually 
improving  one. 

I  have  so  much  confidence  in  the  force  of  the  statement 
just  given  of  the  theory  of  rent,  that  I  might,  I  think,  safely 
neglect  all  consideration  of  the  objections  which  have  been 
made  to  it.  I  shall,  however,  notice  two  of  them ;  and  they 
are  the  only  ones  I  have  met  with  exhibiting  the  slightest 
shade  of  plausibility. 

It  is,  in  the  first  place,  said,  that  there  is  no  land  any  where 
to  be  found,  for  which,  when  leased  by  its  owner  to  any  indi- 
vidual, the  latter  does  not  pay  rent.  There  are,  for  instance, 
barren  tracts  in  the  highlands  of  Scotland  which  are  incapa- 
ble of  compensating  the  labour  applied  to  them,  and  which, 
nevertheless,  constitute  no  exception  to  this  general  remark. 
But  it  may  be  replied,  that  it  is  only  in  appearance  they  do 
not  When  any  considerable  tract  is  leased,  it  may  very  well 
happen  that  certain  portions  of  it  are  entirely  worthless,  and 


POLITICAL  ECONOMY.  89 

pay  in  reality  no  rent,  although  they  seem  to  do  so  because  of 
their  being  comprehended  within  land  of  a  superior  quality. 
Again,  in  every  instance  in  which  the  objection  under  consi- 
deration has  been  urged,  it  will  be  found  that  rent  is  paid  for 
land  on  which,  however  comparatively  unproductive,  some 
labour  has  been  previously  bestowed,  or,  in  other  words,  on 
M^hich  some  capital  has  been  invested ;  and  what  is  paid  may, 
therefore,  be  no  more  than  the  profits  of  such  capital.  Lastly, 
we  might  safely  grant  to  the  objector,  without  any  risk  of 
thereby  affecting  practically  the  correctness  of  the  theory  in 
question,  that  no  proprietor  of  land  will  have  any  motive  to 
let  another  individual  occupy  it  gratuitously,  and  that  the 
motive  to  lease  it  will  only  arise  when  it  can  afford  to  pay 
rent.  Instead  of  saying  that  all  land  pays  rent  excepting  the 
last  taken  into  cultivation,  we  shall  have  to  say  that  all  land 
yields  rent,  including  that  which  is  last  taken  into  cultivation, 
which,  however,  yields  the  smallest  rent  possible,  or  at  most 
a  very  trifling  rent. 

In  the  second  place,  it  is  asserted,  and  correctly  asserted, 
that,  according  to  those  political  economists  who  adopt  the 
theory  of  rent  as  I  have  explained  it,  were  the  fertility  of 
the  land  to  be  every  where  augmented,  rents  would  fall ; 
because  it  would  not  be  necessary  to  cultivate  land  of  as 
inferior  quality  as  before;  and  because  the  exchangeable 
value  too  of  agricultural  products  would  become  less,  deter- 
mined as  this  is  by  the  cost  of  production  under  the  most 
disadvantageous  circumstances  in  which  production  actually 
takes  place.  It  is  then  argued  that  if,  on  the  contrary,  we 
suppose  the  land  to  diminish  in  fertility,  it  will  necessarily 
follow  that  rents  will  continually  rise  ;  and,  consequently,  they 
will  be  at  their  highest  rate  when  the  diminution  of  fertility 
shall  have  reached  its  ultimate  limit,  to  wit,  that  of  absolute 
barrenness.  Is  not  this,  it  may  be  asked,  a  demonstration  ex 
absurdo  of  the  fallacy  of  "  the  theory  of  rent  ?"  I  answer,  no. 
What  the  theory  maintains  is  that,  the  general  rate  of  fertility 


90  THE    PRINCIPLES    OF 

being  given,  rents  will,  in  the  progress  of  society,  be  continu- 
ally rising,  the  proprietors  of  the  land  having  a  larger  and  a 
yet  larger  amount  of  the  whole  of  its  produce,  and  having, 
too,  on  account  of  its  ever  increasing  exchangeable  value,  a 
larger  and  larger  command  over  the  whole  produce  of 
labour.  If  we  now  compare  the  land,  when  its  general 
fertility  is  at  a  certain  rate,  with  the  same  land  when  its 
fertility  is  different,  the  proposition  which  has  just  been  stated 
will,  it  is  obvious,  be  consistently  modified  so  as  to  allot  to 
the  proprietors  of  the  land,  not  in  all  cases  an  ever  increas- 
ing amount  of  its  produce  or  of  the  whole  produce  of 
labour,  but  simply  a  larger  proportional  share  of  what  is, 
in  fact,  produced.  There  is  no  absurdity  in  supposing  rent, 
thus  understood,  to  be  the  highest  at  the  nearest  approach 
to  the  condition  of  perfect  barrenness  on  the  part  of  the 
land:  a  certain  proportional  share  of  a  thimble-full  of  a 
commodity  may  be  in  any  degree  larger  than  a  smaller 
share  of  millions  of  bushels. 


CHAPTER  II. 

FARTHER  EFFECTS  OF  THE  DIMINISHING  RETURNS  FROM  THE 
LAND  ON  THE  EXCHANGEABLE  VALUES  OF  COMMODITIES,  ON  THE 
SUM  OF  PROFITS  AND  WAGES,  ON  PROFITS,  AND  ON  THE  INCREASE 
OF  POPULATION  AND  WEALTH. 

To  proceed  with  the  consequences  necessarily  resulting  from 
a  supposed  increase  of  population,  under  the  circumstances 
in  which  man  is  placed  on  earth,  of  being  obliged  to  apply 
his  labour  to  the  land  ever  more  and  more  disadvantageously. 

Since  the  whole  amount  of  wealth  produced  is  less  than  it 


POLITICAL    ECONOMY.  9l 

would  Otherwise  have  been,  and  since  also,  notwithstanding 
the  diminution  of  that  amount,  a  larger  portion  is  separated 
from  it  for  rent,  it  follows  that  the  capitalists  will  receive  a 
less  proportion  than  they  did  before,  or  which  is  the  same 
thing,  the  rate  of  profits  will  be  reduced,  and  will  remain 
thus  reduced,  unless  the  reduction  should  be  counteracted  in 
part,  or  wholly,  by  a  contemporary  fall  of  wages  ;  which,  my 
readers  will  not  have  forgotten,  is  equivalent  to  a  rise  of  profits. 

If  we  suppose  wages  and  profits  to  fall  in  the  same  propor- 
tion, such  an  alteration  in  their  rates,  it  may  be  worthy  of 
mention,  will  have  no  effect  to  alter  the  exchangeable  values 
of  commodities.  But  agreeably  to  the  principles  already 
explained,  should  profits  have  fallen  in  a  greater  degree  than 
wages,  the  exchangeable  values  of  all  commodities  which  are 
the  products  chiefly  of  fixed  capitals  will  fall,  when  compared 
with  the  exchangeable  values  of  those  which  are  produced 
where  the  predominant  portion  of  the  capital  employed  is 
circulating.  The  contrary  Hkewise  will,  of  course,  take  place, 
if  the  fall  of  wages  be  the  greater  of  the  two. 

But  our  object,  at  present,  being  to  trace  the  consequences 
resulting  from  an  increase  of  the  population  of  a  country, 
while  we,  at  the  same  time,  suppose  the  action  of  all  other 
causes  to  remain  unaltered,  excepting  only  in  so  far  as  they 
may  have  their  intensity  augmented  or  diminished  by  the 
supposed  increase  of  population, — and  this  with  a  view  to  the 
simplifying,  as  much  as  possible,  of  our  investigations, — let  us, 
with  the  same  view,  also  suppose  the  entire  diminution  of  the 
sum  of  profits  and  wages,  consequent,  as  has  been  explained, 
upon  the  apphcation  of  additional  capital  and  labour  to  the 
land,  to  affect  profits  exclusively,  and  wages  to  remain  at  the 
same  rate. 

Although  my  reasoning  will  proceed  on  the  supposition 
just  made,  it  will  be  easy  afterwards  to  modify  the  conclusions 
arrived  at,  according  as  the  diminution  of  the  sum  of  profits 
and  wages  is  supposed  to  affect  both  profits  and  wages,  or 


92  THE    PRINCIPLES   OF 

wages  exclusively.  Indeed,  such  a  modification  of  them  will 
be  so  very  easily  accomplished,  that  the  reader  may  be  left  to 
accomplish  it  for  himself. 

My  first  proposition  now  will  be,  that  a  less  rapid  accumu- 
lation of  capital  will  take  place  than  before  ; — a  proposition 
the  truth  of  which  might,  perhaps,  seem  at  first  to  be  suffi- 
ciently manifest  from  the  mere  fact  of  the  sum  total  of 
production  being  now  comparatively  less  than  it  was,  and 
from  its  consequence,  that  every  individual  of  the  community 
will,  on  the  average,  have  a  less  income,  and  will  thus  be 
disposed  to  save  less.  What  is  produced  is,  however,  now 
somewhat  differently  distributed.  The  landlords  get  not  only 
a  larger  proportional  share  of  the  whole  produce,  but  a 
greater  quantity  of  it  than  they  were  before  entitled  to  ;  and 
the  capitalists  suffer  the  whole  loss  incurred  in  a  diminished 
rate  of  profits.  Will  this  new  distribution  of  the  products -of 
labour  be  favourable  or  unfavourable  to  saving  ?  It  will  be 
unfavourable  ;  more  especially  so  where  rights  of  primogeni- 
ture, entails,  or  any  other  political  or  legal  arrangements, 
have  the  effect  of  forming,  and  keeping  together,  large  landed 
estates.  No  persons  are,  in  general,  less  apt  to  employ  or 
consume  their  incomes  productively  than  the  very  wealthy 
proprietors  of  such  estates  ;  and,  on  the  other  hand,  no  class 
of  persons  are  so  much  disposed  to  accumulate  property  as 
the  capitalists.  Such  accumulation  will  not, 'therefore,  be 
promoted  by  a  transfer  of  a  part  of  their  incomes  from  them 
to  the  landlords.  And  again,  the  lower  the  rate  of  profits  the 
less  inducement  is  there  to  save.  To  illustrate  this,  take  two 
cases  diflfering  widely  from  each  other :  that  of  a  person 
having  at  his  disposal  $2000,  when  the  rate  of  profits  is  100 
per  cent,  per  annum ;  and  of  another  with  the  same  sum, 
when  the  rate  of  profits  is  only  one  per  cent,  per  annum. 
Now  what  motive  will  the  persons  supposed  have  respectively 
to  save  a  certain  portion  of  their  income,  say  $500  ?  An 
equal  amount  of  present  gratification  must  be  foregone  by 


POLITICAL  ECONOMY.  93 

both  ;  while,  in  return,  the  one  will  be  enabled  at  the  expira- 
tion of  a  year,  instead  of  $500,  the  value  of  the  gratification 
he  might  have  enjoyed,  to  command  a  sum  of  only  five 
dollars  more, — and  the  other  will  receive  altogether  as  much 
as  $1000.  1  need  not  say  which  of  them  has  the  stronger 
motive  to  save.  And  the  inference  to  be  drawn  from  the 
comparison  of  other  cases,  approaching  more  nearly  in 
their  circumstances  to  each  other,  will  only  be  different  in 
degree. 

Again,  if  wages  continue  always  the  same,  population  and 
capital  will  advance  together  at  an  equal  rate.  This  is 
manifest,  because  population,  under  the  supposition  made, 
must  necessarily  increase  at  the  same  rate  with  that  portion 
of  capital  which  consists  of  wages ;  and  this  last  rate  is  again 
in  proportion  to  that  of  the  accumulation  of  the  whole  amount 
of  capital.  Hence  too,  since  the  accumulation  of  capital  has 
been  shewn  to  be  continually  retarded  in  consequence  of  the 
effects  necessarily  resulting  from  the  diminishing  returns  to 
capital  and  labour,  when  equal  portions  of  them  are  succes- 
sively applied  to  the  land,  it  follows  that  population  and 
wealth  will  be  ever  augmenting  at  a  slower,  and  yet  slower 
rate. 

The  following  consequences  have  now  been  deduced :  that, 
in  the  pi'ogress  of  society,  from  the  very  nature  of  the  land, 
the  whole  amount  of  wealth  produced  will  be  proportionally 
diminished,  that  is  proportionally  to  the  amount  of  labour 
applied ;  the  exchangeable  value  of  agricultural  products  will 
rise  in  reference  to  all  other  products ;  and  rents  will  be  con- 
tinually rising,  and  therefore  continually  inducing,  by  their 
rise,  a  corresponding  rise  in  the  value  of  the  land  ; — also,  that 
when  wages  are  supposed  to  continue  the  same,  profits  will 
fall ;  there  will  be  a  less  rapid  accumulation  of  capital ;  and 
the  rate  at  which  population  and  wealth  increase  must,  in 
consequence,  be  continually  retarded. 

13 


94  THE    PRINCIPLES    OF 


CHAPTER  III. 

EFFECTS,  IN  AN  OPPOSITE  DIRECTION,  OF   THE  PROGRESS  OF  HUMAJT 

INVENTION. 

The  consequences  which  have  been  deduced  are,  however, 
modified,  and  in  certain  cases  altogether  counteracted,  by 
the  effects  resulting  from  the  development  of  the  powers  of 
human  invention,  in  their  application  to  the  various  arts  of  life. 
The  labour  of  man  is  thus  rendered  more  efficient  to  produce  ; 
and  the  effects  of  the  diminishing  returns  from  the  land  on 
the  whole  amount  produced  may  in  this  manner,  it  is  evident, 
be  either  partially  or  entirely  counteracted,  or  be  even  more 
than  counteracted,  according  to  the  degree  of  the  augmented 
efficiency  of  labour. 

In  the  following  remarks  I  shall  assume,  it  may  be  here  men- 
tioned, that,  wherever  the  contrary  is  not  expressly  stated,  the 
degree  of  industry  exerted  by  a  community  continues  always 
the  same, — and  that  the  proportion  which  the  members  of  it 
who  do  not  labour  at  all  bears  to  those  who  do  continues 
likewise  unaltered.  If  then,  to  use  the  language  of  mathema- 
ticians, these  quantities,  thus  at  first  assumed  to  be  constant, 
be  supposed  to  become  at  any  time  afterwards  variable  quan- 
tities, the  consequences  on  the  amount  of  wealth  produced, 
and  on  the  progress  of  national  wealth,  will,  it  is  manifest,  be 
entirely  similar  to  those  resulting  from  the  augmented  or 
diminished  productiveness  of  labour,  as  the  case  may  be ;  and 
such  variation  in  the  circumstances  before  supposed  to  remain 
unaltered,  it  will  be  perceived,  will  in  no  wise  affect  the  cor- 
rectness of  the  conclusions  which  I  am  about  to  deduce. 
These  circumstances  are,  indeed,  only  very  slowly  alterable  ; 
and,  for  this  reason,  the  favourable  effects  which  may  occa- 
aionally  result  from  a  variation  of  them  are  quite  inconside- 


POLITICAL  ECONOMY.  95 

rable,  when  compared  with  those  which  are  consequent  upon 
the  progress  of  human  invention  in  the  arts. 

The  removal,  too,  of  any  of  those  restrictions  which  have, 
in  every  nation,  more  or  less  trammelled  the  industry  of  the 
people,  and  prevented  it  from  being  as  productive  as  it 
would  otherwise  have  been,  will  also  be  followed  by  effects 
perfectly  analogous  to  those  resulting  from  improvements 
made  in  any  of  the  modes  or  processes  of  production.  And 
hence,  when  the  progress  of  human  invention  is  asserted  to 
be  the  antagonist  principle  to  the  necessarily  diminishing 
returns  of  the  land,  on  the  application  to  it  of  successive 
equal  portions  of  labour  and  capital,  that  progress  should  be 
understood,  as  comprehending  the  class  of  improvements 
which  has  just  been  mentioned. 

If  improvements  in  all  the  arts  were  to  take  place  at  the 
same  rate,  they  would  obviously  have  no  effect  to  alter  the 
exchangeable  values  of  things ;  and  that  rise  in  the  value  of 
agricultural  products,  and  corresponding  fall,  when  compared 
with  these,  in  that  of  manufactured  ones,  which  were  before 
shewn  to  result  from  the  necessity  of  having  recourse  to 
inferior  soils,  would  not  at  all  be  affected.  But  if  we  suppose, 
in  accordance,  very  generally  so  at  least,  with  the  real  state 
of  things,  that  improvements  are  introduced  in  less  rapid 
succession,  and  to  a  less  extent,  in  agriculture  than  in  the  other 
arts,  we  shall  have  an  additional  reason  why  the  cost  of  pro- 
duction in  the  former  should  continually  become  relatively 
greater,  and  the  exchangeable  value  of  agricultural  produce 
should  be  always  on  the  rise. 

With  respect  to  rents,  the  effect  of  agricultural  improve- 
ments will  be  to  cause  them  to  fall ;  for  the  land  which  is 
cultivated,  in  consequence,  under  the  most  unfavourable 
circumstances,  needs  not  be  as  inferior  as  that  which  would 
be  otherwise  so  cultivated ;  and  we  may,  indeed,  conceive 
the  improvement  to  be  so  great  as  to  cause  land  of  the  first 
quality  alone  to  be  cultivated,  when  no  rent  at  all  would  be 


96  THE  PRINCIPLES  OF 

paid.  But  besides  this,  the  effect  of  agricultural  improve- 
ments is  to  diminish  the  cost  of  producing  in  agriculture,  and 
therefore  to  lower  the  exchangeable  value  of  what  is  pro- 
duced. Not  only  will  the  landlords  get  a  smaller  portion  of 
the  products  of  the  land  ;  but  they  will  be  able  to  exchange 
that  portion  for  less  of  the  necessaries  and  luxuries  of  life  than 
before. 

Improvements  in  any  of  the  arts,  other  than  agriculture^ 
will  cause  rents  to  rise.  This  will  be  effected  in  the  following 
manner.  If  we  suppose,  at  first,  no  additional  capital  and 
labour  to  be  applied  to  the  land,  there  will  be  an  extraordi- 
nary demand  for  agricultural  products,  more  especially  for 
the  agricultural  raw  material  to  be  used  in  manufactures, 
which  will  of  course  raise  their  exchangeable  value,  and  by 
thus  making  it  worth  while  to  take  new  land  into  cultivation, 
cause  a  transfer  of  capital  from  other  employments  to  agri- 
culture. Rents  must  then  rise  ;  worse  lands  being  then  culti- 
vated, and  the  exchangeable  value  of  agricultural  products 
becoming,  of  course,  at  the  same  time  greater,  in  comparison 
with  other  commodities.  It  needs  scarcely  be  added  that 
from  the  very  first,  therefore,  these  effects  will  take  place  by 
means  of  the  application  of  the  accumulating  capital  in  the 
proper  proportion  to  every  department  of  production,  includ- 
ing agriculture. 

That  so  long  as  wages  continue  at  the  same  rate, — a  sup- 
position I  have  been  continually  making, — agricultural  im- 
provements will  tend  to  produce  a  rise  of  profits,  is  the 
necessary  consequence  of  the  whole  amount  of  production 
being  augmented,  while,  at  the  same  time,  rents  are  made  to 
fall. 

On  the  same  supposition  again  of  a  permanent  rate  of 
wages,  improvements  in  any  of  the  other  arts,  by  augmenting 
the  amount  produced,  will  have  a  favourable  operation  on 
profits.  But  while  this  is  the  case,  they  will  likewise .  tend, 
by  raising  rents,  to  diminish  profits.     Now  which  of  these 


POLITICAL  ECONOMY.  yf 

tendencies  will  have  the  greater  efficiency  ?  Will  profits,  in 
reality,  rise  or  fall  ?  This  question  does  not,  in  my  opinion, 
adnnit  of  a  general  answer ;  for  the  degree  in  which  rents  will 
rise  must  necessarily  depend  on  the  greater  or  less  rapidity 
with  which  the  returns  from  the  land  diminish,  on  the  appli- 
cation to  it  of  successive  equal  portions  of  capital.  This 
diminution  may  be  supposed  to  take  place  so  rapidly  that 
rents  shall  absorb  a  greater  amount  than  the  additional  pro- 
duction ;  when  it  follows,  of  course,  that  profits  will  fall.  It 
may,  on  the  other  hand,  go  on  at  a  rate  sufficiently  slow  to 
admit  of  profits  rising  simultaneously  with  rents.  The  one, 
as  well  as  the  other,  of  these  results  may,  very  possibly,  in 
fact  occur  in  different  countries,  or  at  different  times  in  the 
same  country  ;  although  I  am  disposed  to  think  the  latter  of 
the  two  to  do  so  much  more  frequently,  and  in  new  countries 
almost  always  so. 

Improvements  in  the  arts,  hy  augmenting  the  amount  of 
wealth  produced,  will  likewise  manifestly  induce  a  more  rapid 
accumulation  of  capital.  But  as  every  rise  of  rents,  to  which 
they  may  give  occasion,  will  produce,  as  has  been  shewn,  a 
distribution  of  wealth  in  a  certain  degree  unfavourable  to 
saving,  the  rate  of  accumulation  will,  on  this  account,  be 
prevented  from  being  as  rapid  as  it  would  otherwise  be.  The 
rate  of  increase,  too,  of  tlie  population  being  determined, 
when  wages  are  supposed  to  continue  always  the  same,  by 
that  of  the  accumulation  of  capital,  whatever  causes  have  a 
tendency  to  accelerate  the  latter  must  Hkewise  tend  to  accele- 
rate the  former. 

On  a  review  of  the  sometimes  agreeing,  and  sometimes  dis- 
agreeing results  to  which  we  have  been  led,  in  relation  to  the 
varying  amount  and  distribution  of  the  wealth  produced,  I 
think  there  can  be  no  hesitation  to  infer  that,  all  things  consi- 
dered, rents  will,  in  the  progress  of  society,  be  continually 
rising ;  that  it  is  possible  for  profits  to  rise  or  fall ;  and  that,  if 
the  same  rate  of  wages  be  always  paid,  capital  and  population 


98  THE  PRINCIPLES  OF 

may  increase  together  at  the  same  accelerated  rate,  or  at  the 
same  retarded  rate.  These  conclusions  will  hardly  be  called 
in  question,  even  by  those  who  may  possibly  find  a  difficulty 
in  at  once  admitting  the  correctness  of  one  or  two  of  my  pro- 
positions, relating  to  the  manner  in  which  wealth  is  at  different 
times  distributed.  And  indeed,  although  it  is  sufficiently 
interesting  to  trace  the  progressive  distribution  of  wealth, 
most  of  the  great  practical  questions  which  look  to  the  prin- 
ciples of  political  economy  for  their  solution,  and  on  the 
proper  solution  of  which  consequences  of  much  moment  to 
the  well-being  of  society  may  be  dependent,  require  nothing 
more,  in  reference  to  the  conclusions  just  stated,  than  an 
assent  to  the  possibility  of  capital  and  population,  while  they 
augment  together,  to  do  so  with  different  degrees  of  rapidity ; 
a  proposition  which  may  be  surely  regarded,  if  any  proposi- 
tion can  be  so  regarded,  as  quite  undeniable  by  the  dullest, 
as  well  as  by  the  most  acute  objector. 

It  may  here  be  mentioned  that  the  continual  rise  of  rents, 
which  has  been  theoretically  deduced,  accords  with  the 
results  of  actual  experience ;  for  the  exchangeable  value  of 
land  being  always  in  proportion  to  the  rent  which  it  yields, 
together  with  the  profits  of  the  capital  invested  on  it,  a  con- 
tinual rise  of  rents  implies  necessarily  a  corresponding  pro- 
gressive augmentation  of  that  value  ;  and  this  is  well  known 
to  be  the  general  fact.  It  is  the  expectation,  too,  of  such  a 
rise  in  the  value  of  land,  as  has  already  been  mentioned,  that 
often  enables  it  to  command  a  price  in  the  market  quite  dis- 
proportionate to  the  value  of  what  it  produces,  and  that 
sometimes  confers  upon  it  a  value  when  it  is  as  yet  altogether 
unproductive. 


POLITICAL  ECONOMY.  99 


CHAPTER  IV. 

IPTTIMATE  CONNEXION  OP  THE  SUBJECTS  OF  WAGES  AND  POPULATION 
CHECKS  TO  POPULATION. 

Assuming  the  rate  of  wages  to  remain  unchanged,  we  have 
inquired  into  the  variations  to  which,  in  the  progress  of  society, 
rents  and  profits  will  be  subjected.  But  the  receivers  of  wages 
are  far  more  numerous  than  the  classes  who  live  on  rents  and 
profits,  and  indeed  constitute  the  main  body  of  every  com- 
munity. Moreover,  the  poorer  classes  of  society  are,  for  the 
most  part,  of  this  description  of  persons.  And  the  happiness 
of  a  people,  as  regards  the  degree  in  which  it  is  determined 
by  the  necessaries  and  luxuries  of  life  they  can  command, 
will  depend  much  more  on  high  or  low  wages  being  paid, 
than  on  the  comparative  rate  of  profits,  or  on  the  amount  of 
rents  received  by  the  landlords.  Accordingly,  the  great 
practical  object  of  the  political  economist  is  not  so  much  to 
promote  the  interests  of  the  wealthy,  by  any  attempt  to  enlarge 
the  sources  of  their  incomes,  as  to  investigate,  and  to  put  into 
execution,  the  measures  best  adapted  to  give  the  poor  man 
the  highest  remuneration  for  his  labour  that  may  be  practica- 
ble, and  to  elevate  him  to  as  high  a  rank  in  the  scale  of 
society  as  the  laws  of  nature,  aided,  and  not  trammelled,  in 
their  beneficial  tendencies,  by  the  co-operation  of  individuals 
and  of  governments,  will  permit. 

The  important  question,  therefore,  now  presents  itself  for 
inquiry : — What  are  the  circumstances  which  regulate  the 
rate  of  wages  ?  And  I  do  not  mean  here  their  comparative 
rates  in  different  occupations :  of  these  I  have  already  treated 
with  sufficient  fulness.  I  mean  the  actual  amount  of  the 
necessaries  and  luxuries  of  life  which,  in  each  respectively, 


100  THE  PRINCIPLES  OF 

any  one  is  enabled  to  procure  in  exchange  for  his  labour  or 
services. 

In  reply  to  the  question  which  has  been  put,  I  may,  in  the 
first  place,  remind  the  reader  that  wages  have  been  shewn  to 
be  determined,  in  every  case,  on  the  principles  of  supply  and 
demand, — by  the  relation,  that  is,  subsisting  between  the 
supply  of  labour  and  the  demand  for  it :  and  as  the  supply 
of  labour,  all  other  circumstances  remaining  the  same,  is  in 
proportion  to  the  number  of  labourers,  and  this  again  in 
proportion  to  the  amount  of  the  whole  population  ;  while,  on 
the  other  hand,  the  demand  for  labour  is  measured  by  that 
portion  of  the  capital  of  a  country  which  consists  of  wages, 
and  which,  again,  is  proportional  to  the  whole  amount  of  that 
capital ; — it  will  follow,  that  the  rate  of  wages  is  dependent  on 
the  relation  which  the  capital  of  a  country  bears  to  the 
numbers  of  the  people.  So  long  as  this  relation  continues  the 
same,  wages  will  remain  unaltered.  If  the  population  remain 
stationary,  wages  will  rise  or  fall  according  as  capital  increases 
or  decreases.  And  as  an  increase  or  decrease  of  capital  can, 
in  that  case,  (the  same  quantity  of  labour  being  always 
applied)  only,  it  is  evident,  take  place  with  an  advance  or 
dechne  in  the  arts,  wages  will  then  rise  or  fall  with  every 
such  advance  or  decline.  If,  on  the  other  hand,  we  suppose 
the  amount  of  capital  not  to  alter,  the  number  of  people  will 
determine  the  rate  of  wages  :  in  fact,  the  very  same  amount 
of  wages  will  have  to  be  divided  among  a  greater  number  of 
persons. 

Hence  it  appears  that  the  laws  which  regulate  the  increase 
of  population  must  first  be  investigated,  before  the  subject  of 
wages  can  be  fully  understood ;  or,  in  consequence  of  their 
intimate  connexion,  it  would,  perhaps,  be  more  proper  to  say 
that  both  subjects  should  be  investigated  together.  To  this 
investigation  I  shall  now  accordingly  proceed. 

I  set  out  with  the  remark  that  the  checks  to  the  increase  of 


POLITICAL  ECONOMY.  101 

population  may  manifestly  be  classed  under  the  two  heads  of 
the  preventive,  and  the  positive  checks :  the  former  prevent  the 
birth  of  human  beings ;  the  latter  destroy  them  after  they 
have  been  brought  into  existence.  Of  the  former  description, 
are  late  marriages,  and  vicious  practices  of  various  kinds  not 
at  all  necessary  to  be  here  enumerated.  Every  cause  of 
mortality,  such  as  disease,  pestilence,  wars,  infanticide,  are  of 
the  latter  description.  It  is  obvious  that  we  may  conceive 
these  checks  to  operate  in  so  great  a  degree,  as  either  to 
keep  the  population  of  any  region  or  district  of  country 
stationary,  or  even  to  cause  it  to  retrogade ; — or,  on  the 
contrary,  we  may  conceive  them  to  operate  in  a  degree 
insufficient  to  prevent  altogether  its  increase.  Indeed,  any 
one  of  the  enumerated  checks,  whether  preventive  or  positive, 
may  be  conceived  to  act  with  an  energy  adequate  to  the 
production  of  either  of  the  two  former  ejBects  ;  and,  a  fortiori, 
to  all  of  them  co-operating  together,  with  the  exception  of  the 
comparative  lateness  of  marriage,  the  same  results  may  be 
attributed; — so  that,  were  every  individual  to  marry  on 
attaining  the  age  of  maturity,  and  the  whole  power  of  popula- 
tion to  be  thus  called  into  activity,  this  would  fail  to  supply, 
or  to  do  more  than  supply,  the  places  of  those  who  were  cut 
off.  In  reality,  however,  the  checks  to  population  very 
seldom  operate  with  an  energy  like  this.  In  a  few  peculiarly 
unhealthy  spots,  and  during  the  actual  prevalence  of  pestilence 
or  war,  such  may  happen  to  be  the  case.  Nevertheless,  it 
may  be  laid  down  as  a  general  law,  established  by  observa- 
tion, that  population  has  the  power  to  keep  itself  stationary,  or 
even  to  advance,  without  the  necessity  of  exerting  the  whole 
procreative  force  of  the  community.  We  find  many  nations, 
too,  rapidly  augmenting  in  numbers,  while  every  individual 
composing  them  is  far  from  marrying,  as  soon  as  he  has 
reached  the  age  of  maturity.  How  many  persons,  for 
example,  are  there  not  in  this  predicament  in  the  United 
States,  where  the  numbers  of  the  people  can  be  shewn,  after 

14 


102  THE  PRINCIPLES  OP 

making  every  allowance  for  immigration,  to  have  doubled 
themselves  in  a  period  so  short  as  tw^enty-five  years, — and 
where,  at  the  present  time,  no  one  will  deny  that,  indepen- 
dently of  the  accession  which  it  is  receiving  from  abroad, 
population  is  doing  much  more  than  sustain  itself!  What- 
ever other  causes  may  be,  therefore,  in  operation  to  retard 
the  progress  of  population,  we  are  entitled  to  regard  the 
delay  of  marriage,  and,  as  a  necessary  consequence,  the 
number  of  those  who  never  marry  at  all,  as  among  the  causes 
which  are,  in  every  country,  conspiring  to  produce  that 
effect.  This  proposition  may,  very  possibly,  appear  to 
the  reader  so  obviously  true,  as,  for  the  moment,  to  subject 
me  to  the  imputation  of  being  exceedingly  common-place. 
But  there  are  some  subjects  which  have  been  so  involved  and 
obscured  by  controversy,  that  it  is  advisable,  when  treating 
of  them,  to  run  some  hazard  of  incurring  such  an  imputation, 
rather  than  fail  of  being  perfectly  understood.  Of  this  nature 
is  the  subject  of  population.  And  indeed,  the  truth  of  the  very 
proposition  of  which  I  am  speaking  has  been  boldly,  although, 
in  my  opinion,  very  absurdly,  denied  by  one  writer  at  least  of 
reputation  in  our  own  country.  His  words  are,  that  "  the  mass 
of  the  people  in  all  countries,  and  at  all  periods,  have  married, 
and  always  will  marry,  upon  their  arrival  at  maturity." 

The  question  now  presents  itself: — Why  the  delay,  of  which 
I  have  spoken,  as  to  marriage  ?  Or,  in  other  words,  why  do 
not  all  men  marry  as  early  as  the  physical  constitution  of  their 
nature  will  permit  ?  The  most  prominent  reason  that  can  be 
given,  for  their  not  doing  so,  is  the  difficulty  of  procuring  the 
means  of  support ;  and  by  the  means  of  support  I  not  only 
mean  the  food  which  is  necessary  for  the  sustaining  of  life, 
but  likewise  all  the  various  necessaries  and  luxuries  which 
each  individual  is  desirous  of  acquiring, — so  desirous  of 
acquiring,  that,  rather  than  forego  doing  so,  he  prefers  the 
postponement  of  marriage.  Population  may,  then,  be  said  to 
he  checked  by  the  difficulty  of  procuring  the  means  oi  support. 


POLITICAL  ECONOMY.  103 

When  these  become  any  where  more  abundant,  population 
augments  with  a  greater  rapidity;  and  where  they  become  less 
abundant,  the  contrary  will  take  place.  This  law  is  most  striking- 
ly illustrated  in  the  case  of  the  great  mass  of  the  receivers  of 
wages,  or,  to  use  the  ordinary  language  on  the  subject,  in  the  case 
of  the  "  working  classes."  When  wages  experience,  from  what- 
ever cause,  a  sudden  rise,  that  is  when  the  labourers  unex- 
pectedly come  to  possess,  in  a  greater  quantity  than  before, 
the  necessaries  and  luxuries  of  life,  it  is  uniformly  found  that 
the  number  of  marriages  is  increased.  A  very  sensible 
influence  on  their  number  is  exerted  by  an  extraordinarily 
fruitful  season,  or  by  one  which  is  in  an  extraordinary  degree 
unfruitful ;  as  is  to  be  inferred  from  the  actual  registers  of 
marriages  kept  in  different  parts  of  England.  When  also  in 
East  Prussia,  in  the  year  1711,  a  pestilence  swept  off,  as  it  is 
said,  one  third  of  the  inhabitants,  and  when  wages  rose,  in 
consequence,  considerably  above  their  usual  level,  the  number 
of  marriages  was  prodigiously  increased  in  the  following  year. 
In  a  tract  of  country  where  their  annual  number  had  been 
6000,  it  was  doubled.  It  is  not,  therefore,  at  all  surprising, 
that  no  effects  of  the  pestilence  should  have  been  remarked 
after  a  few  years,  and  that  the  Prussian  population  should  so 
soon,  as  writers  state,  have  appeared  to  have  restored  itself. 
It  is  worth  noting  too,  that  all  this  marrying,  and  giving  in 
marriage,  took  place  under  the  peculiarly  unpropitious  cir- 
cumstances of  the  gloom  and  mourning  in  which  almost  the 
whole  community  were  involved,  on  account  of  the  deaths  of 
relatives  and  friends, — circumstances  calculated,  of  course,  to 
render  the  remarkable  result  still  more  remarkable. 

Now  it  must  be  manifest,  from  the  known  constitution  of 
human  nature,  that  the  effects  which  have  been  shewn  to 
result  from  an  alteration  in  the  existing  rate  of  wages  are  like- 
wise to  be  attributed  to  every  variation  in  the  accustomed 
incomes  of  individuals,  from  whatsoever  sources  those  in- 
comes may  be  derived ;  nor  is  there  any  reason  why  those 


104  THE  PRINCIPLES   OF 

effects  should  be  limited  to  the  cases  when  incomes  or  wages 
are  small.  When  rents  or  profits  increase,  the  landlords  and 
capitalists  will  be  influenced  exactly  in  the  same  way  as  the 
labourers  are  by  a  rise  of  wages ;  and  whatever  may  be  the 
condition  of  the  different  classes  of  society,  whether  they  be 
rich  or  poor,  enlightened  or  the  reverse,  any  improvement  in 
their  worldly  circumstances  will  invariably  operate  as  a 
stimulus  to  marriage.  Not,  indeed,  in  the  same  degree.  That 
proportionate  increase  of  his  income  which  would  constitute 
a  motive  strong  enough  to  induce  the  marriage  of  every 
uneducated  labourer  might,  very  probably,  not  be  adequate 
to  influence  the  determination  of  many  among  the  wealthy. 
For  few  or  none  among  the  labouring  poor  remain  unmarried 
through  choice.  It  is  the  difficulty  of  procuring  the  means  of 
support  alone  which  restrains  their  inclinations.  On  the  other 
hand,  according  as  the  minds  of  men  are  cultivated  and 
refined  by  education,  or  the  circle  of  their  enjoyment  is 
extended,  not  only  does  the  sexual  passion  become  less  domi- 
nant, and  is  more  readily  counteracted  by  other  desires  and 
passions,  but  individuals  will  be  found  who,  notwithstanding 
any  supposable  accession  to  their  wealth,  would  still  continue 
to  live  a  life  of  celibacy,  through  an  excess  of  that  fastidious- 
ness of  taste  and  of  feeling,  and  that  strength  of  acquired 
habits,  which  are  inseparable  concomitants  of  education  and 
refinement. 

If  we  make  the  contrary  supposition  of  a  general  diminu- 
tio7\^  of  income,  the  consequent  decrease  in  the  number  of 
marriages  will,  of  course,  as  in  the  former  case,  extend  to  all 
classes  of  people,  and  also  in  a  greater  degree  to  the  poor 
than  to  the  rich. 

From  this  view  of  the  subject,  it  might  be  imagined  that 
the  effects,  which  have  been  stated  to  result  from  a  rise  of 
wages,  should  sometimes  be  counteracted,  and  entirely  neu- 
tralised, by  the  opposite  effects  of  a  contemporaneous  fall  of 
rents  or  profits, — especially  of  the  latter.     Yet  inasmuch  as 


POLITICAL  ECONOMY.  105 

the  proportion  of  those  who  gain  their  hvelihood  by  the  receipt 
of  wages,  in  exchange  for  services  rendered  by  them,  is  vastly 
greater  than  the  number  of  those  who  Hve  by  rents  or  profits  ; 
and  as  the  great  majority  of  the  receivers  of  wages  are  pre- 
cisely those  members  of  the  community  who  are  most  readily 
induced  to  marry  by  any  improvement  in  their  circumstances  ; 
and  moreover,  since,  in  the  progress  of  society,  it  will  fre- 
quently, if  not  generally,  be  found  that  profits  and  wages  rise 
or  fall  together  ; — we  see  how  it  is  that  every  rise  of  wages, 
unaccompanied  by  a  corresponding  improvement  in  the  habits 
of  the  people,  is  in  fact  always  productive  of  an  increased 
number  of  marriages,  and  why  every  fall  of  wages  has  in- 
variably the  opposite  effect. 


CHAPTER  V. 

THE  SUBJECT  OF  POPULATIOPf  CONTINUED. 

The  proposition  which  I  have  been  endeavouring  to  estab- 
lish, and  which  I  hope  I  have  succeeded  in  establishing  to 
the  satisfaction  of  the  reader,  is  that  "population  is  every 
where  checked  by  the  difficulty  of  procuring  the  means  of 
support."  This,  however,  is  a  very  different  proposition  from 
that  which  asserts  population  to  be  checked  by  the  difficulty 
of  procuring  the  means  of  subsistence.  Both  of  them  cannot 
at  the  same  time  be  true,  unless  subsistence  be  used  synony- 
mously with  the  means  of  support,  as  applying  to  the  whole 
revenue  or  income  of  individuals,  whether  this  be  valued  at 
100  or  10,000  dollars  per  annum.  But  this  sense  of  the  word, 
notwithstanding  it  is  in  some  measure  countenanced  by  the 
authority  of  Dr.  Johnson,  in  his  dictionary,  appears  to  me  to 
be  entirely  at  variance  with  the  common  use  of  language. 

If  subsistence  be  understood  to  comprehend  the  food,  cloth- 


106  THE  PRINCIPLES  GF 

ing,  shelter,  and,  in  short,  whatever  is  indispensable  to  the 
preservation  of  human  life  in  its  rudest  and  most  degraded 
condition,  it  may  be  confidently  affirmed  that  the  difficulty  of 
procuring  the  means  of  subsistence  is  no  where  the  imme- 
diate or  actual  check  to  population.  No  people  have  ever 
existed,  even  the  most  rude,  who  have  not,  in  some  measure 
lived  in  the  enjoyment  of  what,  relative  to  a  mere  subsistence, 
may  be  denominated  luxury :  and  the  mass  of  the  population 
in  all  civilised  countries  are,  in  general,  far  enough  removed 
from  the  limits  prescribed  by  a  hard  and  savage  necessity. 

But  if  the  difficulty  of  procuring  the  means  of  subsistence, 
as  the  term  is  just  now  supposed  to  be  used, — and,  perhaps, 
this  is  the  proper  mode  of  using  it, — be  not  an  immediate 
check  to  population,  can  it  be  regarded  as  an  ultimate  check  ? 
Does  it  present  a  limit  beyond  which  population  cannot  be 
conceived  to  increase ;  a  Hmit  which,  when  reached,  will 
render  it  necessary  that  the  numbers  of  mankind  should  be 
kept  down,  either  by  a  diminution  of  the  number  of  marriages 
and  births,  or  by  the  aggravated  devastations  of  disease  ? 
The  answer  to  this  question  will  depend  entirely  upon  the 
comparative  productiveness  of  labour  in  the  different  stages 
of  the  progress  of  society.  If,  when  the  number  of  labourers 
is  doubled,  the  products  of  their  labour  will  also  be  doubled, 
it  is  plain  that  no  hmits  whatever  can  be  assigned  to  the 
increase  of  population.  So  if  labour  should  become  compara- 
tively more  and  more  productive.  But  on  the  other  hand,  if 
the  powers  of  production  should  not  keep  pace  with  the 
multiplication  of  the  number  of  labourers,  population  could 
not  increase  at  all,  unless  we  at  the  same  time  suppose  the 
share  of  its  products  received  by  each  individual  to  be  less 
than  before  :  and  population,  on  this  supposition,  and  on  this 
supposition  only,  may  continually  approximate  to  the  limits  of 
a  mere  subsistence. 

The  effect  of  the  portion  of  the  community  who  before 
lived  on  rents  or  profits  also  becoming  labourers,  or  of  the 


rOLITICAL    ECONOMY.  107 

community  generally  becoming  more  industrious,  would  no 
doubt  be  to  retard  the  deteriorating  process  which  has  been 
mentioned ;  but  it  must  be  likewise  evident  that  the  causes  of 
this  retardation  of  the  evil  would  be  wholly  inadequate  to 
prevent  it  altogether. 

Mr.  Malthus  however,  and  most  other  political  economists, 
restrict  the  meaning  of  the  term  subsistence  to  food  merely. 
In  this  acceptation  of  it,  it  is  even  more  obvious  than  in  the 
preceding  that  the  difficulty  of  procuring  the  means  of  sub- 
sistence is  not,  in  general,  an  immediate  check  to  the  increase 
of  population.  Indeed  it  is  never  so,  excepting  in  the  com- 
paratively very  rare  case  of  actual  famine.  Nor  can  it  be  the 
ultimate  check  to  that  increase;  for,  as  has  been  already 
explained,  long  before  the  whole  labour  of  the  community 
could  be  applied  to  the  exclusive  production  of  food,  or,  what 
amounts  to  the  same  thing,  to  the  exclusive  production  of 
those  commodities  in  exchange  for  which  they  obtain  food, 
population  would  have  become  stationary. 

But  enough,  for  the  present,  in  respect  to  erroneous  opinions, 
or  in  respect  to  objectionable  modes  of  expressing  correct 
ones.  Let  us  now  proceed  with  the  deduction  of  such  conse- 
quences as  flow  legitimately  from  the  law  which  has  been 
established, — that  population  is  every  where  checked  by  the 
difficulty  of  procuring  the  means  of  support.  First,  since 
when  those  means  become  at  any  time  more  abundant,  that  is 
whenever  the  checking  or  counteracting/orce  is  in  any  degree 
removed,  population  begins  immediately  to  increase  with  more 
rapidity  than  it  did,  we  can  make  no  hesitation  to  assent  to 
the  following  propositions, — that  population  is  ever  'pressing  on 
the  means  of  support, — and  that  population  has  a  tendency  to 
increase  more  rapidly  than  the  means  of  support.  These  two 
propositions  are,  in  fact,  only  different  modes  of  expressing 
that  from  which  I  have  asserted  them  to  be  obviously  deduci- 
ble. 

Yet  it  is  proper  to  mention  that  there  are  writers  who  have 


108  THE  PKINCirLES  OP 

objected  to  the  ascribing  to  population  a  tendency  to  increase 
more  rapidly  than  the  means  of  subsistence ;  pronouncing  the 
term  tendency  to  be  one  of  such  ambiguity  as  to  be  very  pro- 
perly discarded  altogether  from  our  present  subject;  and 
denying,  too,  the  propriety  of  speaking  of  anything  as  having 
a  tendency  to  advance  more  rapidly  than  another  in  a  particu- 
lar direction,  vi^hen  they,  in  truth,  advance  together.  Now  as 
the  very  same  objections  are  capable  of  being  made  to  the 
asserted  tendency  of  population  to  increase  more  rapidly  than, 
or  beyond,  the  means  of  support ;  and  as  the  term  tendency  is 
a  convenient  one,  which  cannot  easily  be  got  rid  of  in  refer- 
ence to  the  subject  of  population,  without  the  use  of  much  and 
frequent  circumlocution ;  I  shall  remark,  in  justification  of  its 
being  employed  in  the  manner  in  question,  that  it  is  so 
employed  in  perfect  analogy  to  the  use  made  of  the  term  ten- 
dency in  mechanical  philosophy,  which  is  the  source  whence 
it  has  been  borrowed.  When  a.  force  has  been  prevented  in 
any  manner  from  producing  its  proper  effect  of  motion  in  a 
particular  direction,  the  body  on  which  it  acts  is  still  said  to 
have  a  tendency  to  move  as  if  not  thus  prevented  from  mov- 
ing. The  mechanician,  for  example,  speaks  of  the  tendency 
of  a  heavy  body,  placed  on  a  table  or  horizontal  plane,  to 
descend  in  the  direction  of  gravity,  though,  in  reality,  its 
motion  is  wholly  prevented  by  the  resistance  of  the  plane.  So 
again,  a  body,  placed  in  one  of  the  scales  of  a  balance,  is  very 
properly  said  to  tend  towards  the  earth,  even  when  in  equili- 
brium with  an  equal  weight  in  the  opposite  scale ;  and  this 
tendency  is  experimentally  shewn  to  exist,  in  the  only  way  in 
which  it  can  be  made  to  appear,  to  wit,  by  removing  or 
weakening  the  counteracting  force, — when  the  body  actually 
falls  to  the  ground.  In  morals  also,  we  continually  compare 
the  influence  of  motives  on  the  mind  with  the  action  of  me- 
chanical causes  on  matter.  We  speak  famiharly  of  the 
tendency  of  a  motive  to  produce  its  appropriate  effect  on  the 
conduct ;  and  this  when  the  actual  determination  of  the  mind, 


POtlTICAI.  ECONOMY.  109 

through  the  operation  of  other  motives,  is  directly  the  con- 
trary. And  in  the  case  under  consideration,  which  has  led  to 
these  remarks,  it  should  be  recollected  that  the  sexual  passion, 
and  the  desire  to  marry,  are  not  extinguished  in  the  breasts  of 
that  portion  of  the  community  who  continue  to  live  in  a  state 
of  celibacy,  but  are  only  counteracted  by  the  opposite  motive 
of  a  desire  for  the  enjoyment,  in  a  greater  degree,  of  the  vari- 
ous conveniences  and  luxuries  of  life.  If  these  become  at  any 
time  more  abundant,  or,  in  other  words,  if  adequate  means  for 
the  support  of  a  family  are  more  easily  procurable,  a  greater 
number  of  marriages  will  take  place,  and  the  previous  exist- 
ence of  the  tendency  of  population  to  increase,  faster  than  the 
means  of  support  can  be  provided,  will  immediately  become 
manifest.  Hence,  likewise,  it  appears  that  this  tendency  is 
always  in  exact  proportion  to  the  force  of  the  check  which  is 
presented  by  the  difficulty  of  procuring  the  means  of  support ; 
and  consequently,  that  it  is  greatest,  not  when  population  in- 
creases most  rapidly,  but,  on  the  contrary,  when  this  increase 
is  the  slowest.  It  will,  of  course,  also  be  true,  that,  when 
population  is  actually  making  the  most  rapid  progress,  the 
tendency  in  question  will  be  the  least. 

This  tendency  I  shall  hereafter  designate  as  the  principle  of 
population,  in  conformity  with  the  general  usage  of  the  writers 
on  political  economy,  when  they  speak  of  it  in  reference  to 
the  difficulty  of  procuring  the  means  of  subsistence ;  and  we 
shall  at  any  time  be  enabled  to  form  something  like  an  esti- 
mate of  this  tendency,  or  of  the  energy  with  which  this  prin- 
ciple is  acting  at  any  particular  time  and  place,  by  comparing 
the  actual  rate  at  which  the  population  is  increasing  with  the 
rate  at  which  it  would  increase,  were  there  no  difficulty  what- 
ever in  procuring  the  means  of  support.  Of  course,  the  last 
mentioned  rate  cannot  be  ascertained  with  absolute  precision  ; 
but  it  is  easy  to  approach  to  it,  by  assuming  it  to  be  at  least  as 
rapid  as  the  rate  at  which  the  population  has  actually  in- 
creased in  some  one  country,  or  region  of  country,  situated  in 

15 


110  THE   PRINCIPLES  OF 

average  circumstances  of  mortality,  and  of  those  circum- 
stances -whicii  constitute  the  various  other  checks  to  the  pro- 
gress of  population,  the  delay  of  marriage  only  excepted. 
Since,  therefore,  population  has  actually  doubled  itself,  from  its 
own  resources,  in  the  United  States  of  America, — which  is  pro- 
bably about  as  fair  a  field  for  observation  on  the  subject  as  could 
be  desired, — in  so  short  a  period  of  time  as  twenty  five  years,  we 
may  conclude  that  it  has  generally  the  power  of  doubling 
itself  in  that  period  of  time  ;  and  we  see,  consequently,  how 
great  must  be  the  tendency  of  population  to  increase  beyond 
the  means  of  support  in  countries  where  it  is  actually  station- 
ary, or  even  declining;  or,  in  other  words,  we  see  how 
actively  the  principle  of  population  would  exert  itself,  if  the 
checks  to  its  exertion  were  to  be  suddenly  removed. 


CHAPTER  VI. 

THE    SAME    SUBJECT    CONTINUED HABITS    OF  THE    COMMUNITY  IN 

RELATION    TO    MARRIAGE HOW  THOSE    HABITS    ARE  TO  BE    IM- 
PROVED. 

The  principle  of  population  being  once  established,  it  will 
follow  that  the  average,  necessary,  or  natural  rate  of  wages 
in  any  country  must  remain  always  the  same,  so  long  as  the 
habits  of  the  people  generally  in  relation  to  marriage  continue 
the  same ;  for  every  rise  of  wages  which  may  occur  un- 
der these  circumstances,  from  whatever  cause  originating, 
will  lead  to  a  more  rapid  augmentation  of  the  population ; 
and  this  again  will  require,  and  be  accompanied  by,  the 
pushing  of  cultivation  on  inferior  soils,  and,  in  general,  under 
more  disadvantageous  circumstance  than  would  otherwise  be 
the  case  ;  which,  in  its  turn,  as  has  already  been  explained, 


POLITICAL    ECONOMir.  HI 

will  diminish  the  amount  oi proportional  production,  and  thus, 
as  has  likewise  been  explained,  reduce  wages,  and  reduce 
them  too  to  their  former  level.  It  is  unnecessary  to  trace  the 
process  by  means  of  which  a  similar  return  to  the  former  and 
accustomed  rate  of  wages  will  be  brought  about,  if  wages, 
instead  of  having  risen,  be  supposed  to  have  fallen.  My 
readers  cannot  avoid  perceiving  that  it  is  one  perfectly  anal- 
ogous to  that  which  has  just  been  described,  only  occurring  in 
an  opposite  direction. 

Now  all  this,  it  will  be  borne  in  mind,  is  on  the  supposition 
of  no  alteration  taking  place  in  the  habits  of  the  people,  in 
respect  to  marriage.  But  these  habits  have  been  intimated  to 
be,  and  they  are  notoriously  (though  at  all  times  only  slowly 
alterable)  very  different  in  different  countries,  and  in  the  same 
country  at  different  periods.  That  rate  of  wages,  for  instance, 
which  would  determine  the  marriage  of  every  inhabitant  in 
Ireland,  would  be  regarded  by  a  large  proportion  of  English- 
men as  inadequate  for  the  support  of  a  family,  and,  in  the 
United  States,  would  by  many  of  the  labouring  poor  be  pro- 
nounced to  be  insufficient  for  a  single  individual. 

Let  the  alteration  in  respect  to  the  habits  of  the  community 
be  such  as  to  determine,  all  other  circumstances  remaining  the 
same,  a  diminution  in  the  number  of  marriages ;  in  other 
words,  let  these,  in  general,  take  place  at  a  less  early  period  of 
life  than  heretofore.  The  consequence  will  be  that  the  in- 
crease of  population  will  be  retarded  ;  recourse  will  not  so 
soon  be  had  to  inferior  soils ;  the  total  proportional  amount  of 
production  will  be  greater  than  it  would  otherwise  have  been  ; 
and  wages  will  rise.  They  must,  too,  continue  at  this  higher 
rate  so  long  as  the  habits  of  the  people  do  not  again  change. 

It  is  plain  that  every  thing  will  occur  in  a  contrary  order, 
if  we  suppose  those  habits  to  vary  in  an  opposite  direction. 
The  progress  of  population  will  then  be  accelerated  ;  land 
will  consequently  be  cultivated  under  more  disadvantageous 
circumstances  than  would  otherwise  be  the  case ;  the  sum  of 


112  THE    PRINCIPLES   OP 

what  is  produced  will  be  lessened  proportionately  to  the 
numbers  of  the  people ;  and  wages  will  be  permanently  de- 
pressed. 

We  may,  therefore,  lay  it  down  as  a  general  proposition, — 
and  it  is,  perhaps,  the  most  important  proposition  in  the  whole 
science  of  political  economy, — that,  in  every  country,  and  in 
every  period,  the  rate  of  wages  is  determined  by  the  habits  of 
the  people,  as  this  term  has  been  applied  by  me  in  the  present 
chapter. 

It  becomes  of  the  utmost  moment  to  inquire  into  the  various 
causes  which  are  capable  of  affecting  those  habits,  in  order 
that  we  may  know  how  they  may  be  improved,  and  a  larger 
command  of  the  necessaries  and  luxuries  of  life  secured  to 
the  great  mass  of  the  community.  Now  there  are  obviously 
only  two  ways  of  doing  this :  Jii^st,  by  multiplying  the  wants, 
and  thereby  stimulating  the  desires  of  the  people  generally,  for 
every  enjoyment  of  Hfe  that  is  not  of  an  injurious  or  immoral 
tendency ;  for,  in  proportion  to  the  multiplication  of  the 
soui'ces  whence  enjoyment  may  be  derived,  will  the  enjoy- 
ment derived  from  any  one  of  them  be  in  our  estimation  of 
comparatively  less  importance,  and  comparatively  less  an 
object  of  desire.  By  thus  imbuing  the  people  with  a  taste  for 
enjoyment  other  than  that  resulting  from  the  gratification  of 
the  sexual  passion,  they  will,  naturally  and  voluntarily,  be  led 
to  retard  the  average  period  of  marriage,  and  to  check,  by  so 
doing,  the  too  rapid  increase  of  population.  The  second  way 
in  which  the  same  result  can  be  produced  is  by  inculcating 
habits  oi  foresight, — increasing  in  this  manner  the  disposition 
of  individuals  to  have  regard  to  their  power  of  obtaining  the 
comforts  of  life  in  the  future,  as  well  as  at  the  present, — a 
disposition  leading  them  to  make  a  still  larger  provision  before 
marrying,  or  at  least  to  see  their  way  clearer  before  them  in 
the  world  before  doing  so  than  would  otherwise  be  the  case. 

I  have  said  that  these  were  the  only  ways  of  checking  the 
too  rapid  increase  of  population.     It  would  have  been  more 


POLITICAL    ECONOMY.  113 

proper  to  have  said  that  these  were  the  only  ways  in  which  it 
was  expedient,  or  just,  to  attempt  to  apply  such  a  check.  All 
compulsory  abstinence  from  marriage  is  unquestionably  to  be 
deprecated.  Not  to  speak  of  the  immoral  consequences  of 
every  measure  of  the  kind,  an  extreme  degree  of  odium  will 
unavoidably  attach  to  it,  on  account  of  its  partial  operation  on 
the  poorer  classes  of  the  community.  Those  who  would  thus 
be  prevented  from  marrying  would  be  sufferers  without  any 
counterbalancing  advantage  on  their  part,  and  might  reason- 
ably require  the  rich  to  partake  with  them  in  the  sacrifice  to 
be  made  for  the  general  good  of  the  next  generation.  Such  a 
measure  would,  indeed,  be  equivalent  to  a  violation  of  the 
rights  of  pivperty  ;  for  when  a  portion  of  a  person's  property 
is  taken  from  him,  the  consequence  is  that  his  enjoyment  of 
the  necessaries  and  luxuries  of  life  must  become  proportion- 
ally contracted ;  and  a  diminution  of  enjoyment  will  equally 
take  place  among  the  poor,  when  the  lujcury  of  marriage  is 
reserved  in  any  degree  for  the  richer  classes. 

No  account  is  moreover,  in  my  opinion,  to  be  made  of  any 
effect  which  can  be  produced  on  the  minds  of  the  labouring 
poor,  in  inducing  them  to  delay  the  period  of  marriage,  by 
indoctrinating  them  in  the  correct  principles  of  political  econ- 
omy. To  attempt  this  by  such  means  would  be  wholly  useless. 
Unless  those  desires  which  constitute  the  motives  of  action  on 
the  part  of  the  poor  man  be  in  some  degree  modified,  so  as  to 
induce  him  to  do  willingly,  or  by  preference,  what  it  is  wished 
that,  he  should  do,  no  mere  theoretical  conviction  of  the  hap- 
piness of  the  community  being  promoted,  by  the  retardation 
of  the  average  period  of  marriage,  will  render  him  willing  to 
sacrifice  for  the  general  good  v^^hat  he  deems  to  be  promotive 
of  his  own  happiness.  And  to  deliver,  as  some  political 
economists  have  seriously  and  philanthropically  proposed, 
popular  lectures  from  time  to  time  on  the  importance  to  the 
general  welfare,  of  every  individual  looking  well  before  he 
marries  to  the  length  of  his  purse  and  the  prospect  he  may 


114  THE  PRINCIPLES  OP 

have  of  obtaining  a  livelihood  for  himself  and  family,  may 
be  characterised  as  not  merely  useless,  but  absolutely  ridicu- 
lous. 

Nothing  of  this  kind,  the  reader  will  bear  in  mind,  has 
been  recommended  in  the  present  treatise.  I  say  to  no  man 
"do  not  marry."  My  dependence  for  accompHshing  the 
proposed  object,  viz.  the  retarding  of  the  too  rapid  increase 
of  population,  rests  on  the  simple  operation  on  the  minds  of 
men  of  the  moral  causes  which  have  been  mentioned  in  the 
present  chapter.  Let  individuals,  and  let  governments,  do 
every  thing  in  their  power  to  enlarge  the  desires  of  the  great 
body  of  the  people,  and  to  promote  among  them  the  growth 
of  habits  of  foresight.  And  if  the  object  in  view  shall  be,  not 
compulsorily,  but  voluntarily,  accomplished  by  these  means, 
no  class  of  persons  will  have  reason  to  complain. 

It  may  here  be  proper  to  notice  an  objection  which  has  been 
urged,  and  been  urged  with  an  air  of  much  triumph,  against 
the  consistency  of  the  recommendations  which  have  just  been 
made.  While  the  poor  man  is  told  that  he  ought  to  cultivate 
as  extensive  a  taste,  so  to  speak,  for  enjoyment  as  possible,  and 
ought  not  to  be  satisfied  with  consuming  only  a  comparatively 
inconsiderable  amount  of  the  luxuries  of  life, — he  is  at  the 
same  time  told,  that  he  ought  not  to  consume  what  he  has  in 
his  power  to  consume,  but  to  save  a  portion  of  it,  and  that  the 
more  he  saves  the  better ;  and  this  is  asserted  to  be  a  contra- 
diction in  terms.  This  objection  is,  however,  founded  on  a 
very  superficial  view  of  the  subject.  It  is  surely  quite  possi- 
ble for  an  individual  to  have  an  enlarged  desire  for  luxuries, 
and  at  the  same  time  to  be  more  solicitous  than  he  was  wont 
to  be  to  have  it  in  his  powei  to  consume  them  at  a  future 
period.  Habits  of  foresight  do  not  imply  on  his  part  a  dispo- 
sition to  be  content  with  a  diminished  consumption,  but 
simply  that  he  has  been  led  to  prefer  a  different  distribution  of 
his  consumption  than  heretofore ; — that  he  has  become  more 
anxious  to  secure  to  himself  and  family  a  continuance  of  their 


POLITICAL  ECONOMY.   ,  115 

present  rate  of  enjoyment.  So  far,  I  may  add,  from  there 
being  any  ground  for  the  alleged  inconsistency,  it  will  gene- 
rally be  found  that  when  the  desire  for  present  enjoyment  is 
extended,  that  for  future,  when  compared  with  present 
enjoyment,  will  be  also  extended. 


CHAPTER  VII. 

MEANS  OF    ENLARGING  THE  DESIRES  OF  MEN,  AND  OF  INCULCATING 

UPON  THEM  HABITS  OF  FORESIGHT INFLUENCE  OF  MORAL  CAUSES 

IN  DETERMINING  THE  COMMAND   OF    THE  COMMUNITY  OVER    THE 
NECESSARIES  AND  LUXURIES  OF  LIFE. 

Now  what  are  the  means  of  enlarging  the  desires  of  men  ? 
And  what  is  the  most  effectual  mode  of  inculcating  habits  of 
foresight  on  the  great  mass  of  the  community  ? 

We  may,  in  the  first  place,  look  to  education,  using  this 
term  in  its  most  extensive  meaning,  for  a  satisfactory  answer 
to  these  questions.  This  is  sufficiently  evident  not  to  require 
me  to  enter  into  any  details  of  illustration.  Just  in  proportion 
as  men  are  made  acquainted  with  the  properties  of  things,  and 
their  understandings  become  expanded,  will  they  be  apt  to  be 
dissatisfied  with  a  contracted  range  of  enjoyment.  And  habits 
of  foresight  will  be  the  necessary  result  of  the  general  diffu- 
sion of  education,  intellectual,  moral,  and  religious.  The 
intellectual  man  lives  not  only  in  the  present,  but  likewise  in 
the  past  and  in  the  future, — and  in  the  past,  in  so  far  as  it  is 
conceived  to  be  an  index  of  the  future.  He  whose  actions 
are  continually  guided  by  the  consideration  of  duty,  cannot 
but  be  much  occupied  in  tracing  their  remoter  effects.  Who, 
likewise,  will  more  probably  be  possessed  of  an  habitual  fore- 


116  THE  PRINCIPLES  OF 

sight  in  the  affairs  of  Hfe,  than  the  individual  whose  attention 
is  much  and  systematically  diverted  from  the  contemplation 
of  the  fleeting  present  to  that  of  the  eternal  future  ? 

But,  secondly,  individuals  and  governments  should  do  every 
thing  in  their  power  to  promote  the  progress  of  improvement 
in  the  arts,  and,  what  has  been  stated  to  be  tantamount  to  such 
improvement,  to  effect  as  entire  a  removal  as  is  practicable 
of  the  various  restrictions  upon  man's  liberty  of  applying  his 
labour  and  capital  as  he  may  deem  to  be  most  conducive  to 
his  own  interests, — restrictions  which,  notwithstanding  the 
lights  of  political  economy,  are  still  in  a  greater  or  less  degree 
existent  in  every  country.  A  greater  productiveness  of  labour 
will  then  ensue,  and  will  operate  advantageously,  by  its  ten- 
dency to  enlarge  the  desires  of  the  community  for  enjoyment. 
This  result  will  be  brought  about  in  the  following  manner. 
The  first  effect,  as  has  already  been  very  fully  explained, — 
will  be  a  corresponding  increase  in  the  amount  of  wealth  pro- 
duced. Wages  will  then  rise  ;  and  a  stimulus  will,  in  conse- 
quence, be  applied  to  population.  As  this  becomes  more 
numerous,  and  more  numerous  too  than  it  would  otherwise 
have  been,  the  necessity  will  sooner  occur  of  having  recourse 
to  inferior  soils  and  to  less  advantageous  circumstances  in 
respect  to  cultivation ;  and  wages  would  hence  gradually  fall 
to  their  former  level,  were  the  habits  of  the  community  in  rela- 
tion to  marriage  to  continue  unchanged.  But  these  habits 
would  not  continue  unchanged.  The  great  body  of  the  peo- 
ple, having  for  a  time  become  accustomed  to  the  enjoyment 
of  a  greater  amount  than  before  of  the  conveniences  and 
luxuries  of  life,  will  not  readily  relapse  into  their  former  con- 
dition. They  will,  rather  than  subject  themselves  to  the  risk 
of  doing  so,  consent  to  the  postponement  of  marriage  for  a  short 
time ;  and  their  condition  generally  will,  accordingly,  be  some- 
what elevated.  Every  improvement  in  the  arts  has,  therefore,  a 
tendency  to  produce  two  distinct  effects ;  first,  to  increase  the 
numbers  of  a  people,  and  secondly,  to  enlarge  their  command, 


POLITICAL  ECONOMY.  117 

on  the  average,  over  the  various  enjoyments  which  are  the 
products  of  human  labour.  I  may  Ukewise  observe,  that  these 
two  effects  do  not  keep  pace  with  each  other ;  but  while  the 
one  takes  place  in  a  greater  degree,  the  other  must  necessarily 
do  so  in  a  less  degree. 

It  can  scarcely  be  necessary  to  remark  that,  where  improve- 
ments are  continually  making,  the  effect,  unless  counterbalanced 
by  the  action  of  other  and  opposing  causes,  will  be  a  gradually 
augmenting  rate  of  wages.  Another  remark,  the  correctness 
of  which  is  not  quite  so  obvious,  but  which  will  be  perceived 
by  the  reader  on  a  little  reflexion  to  be  true,  is  that,  when 
population  is  actually  increasing  with  great  rapidity,  or,  in 
other  words,  when  it  is,  comparatively  speaking,  unchecked, 
it  will  be  much  easier,  by  retarding  the  average  period  of 
marriage,  to  prevent  its  too  rapid  increase,  than  when  that 
period  is  already  late,  and  when,  of  course,  the  population  is 
only  slowly  increasing. 

To  the  two  modes  which  have  been  mentioned  of  improving 
the  condition  of  a  people  may  be  added,  in  the  third  place,  all  the 
institutions  and  contrivances  of  various  kinds,  such,  for  exam- 
ple, as  savings'  banks  and  benefit  societies,  that  are  calculated  to 
promote  habits  of  foresight,  and  that  are  not,  commonly  and 
strictly  speaking,  comprehended  among  the  means  of  educa- 
tion ;  as  also  the  abohtion  of  all  such  institutions,  and  the 
repeal  of  all  such  laws,  as  tend  to  encourage  habits  of  impro- 
vidence without  any  compensating  advantage, — at  least  to  as 
great  an  extent,  and  as  speedily,  as  is  consistent  with  humanity, 
and  with  a  fidelity  to  the  subsisting  vested  claims  of  the  poor. 

And  I  may  mention,  in  the  fourth  place,  the  expediency, 
with  a  view  to  the  improvement  of  the  general  condition  of  a 
people,  of  extending  to  the  poorer  and  less  educated  portion  of 
them  a  direct  influence  on  the  operations  of  the  government, 
as  soon  as  they  are  sufficiently  enlightened  for  such  influence 
to  he  entrusted  to  them,  with  safety  to  their  own  and  their  CQun^ 
try's  permanent  interests.     Where  a  representative  govern- 

16 


118  THE  PRINCIPLES    OF 

ment  has  been  instituted,  the  extension  of  the  right  of  suffrage 
will  contribute  much  to  elevate  the  general  character  of  the 
citizens,  by  directing  their  thoughts  to  matters  of  a  higher  and 
more  enduring  importance  than  the  petty  concerns  of  their 
immediate  neighbourhoods  or  of  their  every  day  life.  Con- 
scious of  his  weight  in  the  community  of  which  he  is  a  mem- 
ber, each  voter  will  necessarily  possess  a  certain  self-respect, 
which  will  render  him  less  disposed  to  aim  at  sensual  gratifi- 
cation as  the  principal  object  for  which  he  was  brought  into 
existence,  and  less  disposed  to  take  any  step  that  is  hkely  to 
depress  his  condition  in  society.  The  very  exercise,  too,  of 
the  right  of  suffrage  by  any  one  will,  from  what  has  just  been 
stated,  obviously  tend  to  qualify  him  more  and  more  for  the 
proper  exercise  of  it. 

Here  if  the  question  be  asked, — by  what  criterion  shall  we 
determine  the  safety  of  any  proposed  extension  of  the  right  of 
suffrage  ?  I  reply  that  the  question,  although  having  an  inti- 
mate relation  to  the  science  of  political  economy,  does  not  lie 
properly  within  its  [domain,  and  is  therefore  one  to  which  I 
may,  with  propriety,  decline  giving  an  answer.  It  will  be 
sufficient  for  me,  at  present,  to  make  the  now  common-place 
remark,  that  the  right  of  which  I  am  speaking  can  be  advan- 
tageously extended  exactly  in  proportion  as  a  community  is  a 
religious,  moral,  and  intelligent  community ;  and  to  remark 
also  that  a  people  who  are  so  extravagant  in  their  expectations 
of  the  benefits  to  be  derived  from  mere  political  change,  as  to 
expect  from  it  any  sudden  and  extraordinary  elevation  in  the 
condition  of  the  labouring  and  poorer  classes  of  society,  or 
who  conceive  that  the  only  reason  why  many  are  poor  is  that 
a  few  are  rich,  are  but  ill  prepared  for  performing  the  func- 
tions of  self-government.  A  people  of  this  description  will  be 
very  apt  on  coming  to  the  possession  of  power  in  a  state,  espe- 
cially on  coming  into  possession  of  it  suddenly,  to  advance 
from  change  to  change,  and  from  revolution  to  revolution,  until 
no  government  excepting  one  of  the  strongest  and  most  des- 


^  POLITICAL    ECONOMY.  119 

potic  kind  will  be  able  to  maintain  itself  amidst  the  universal 
disregard  of  every  thing  established,  or  be  able  to  protect  the 
community  from  being  overvi^helmed  by  the  horrors  of  anarchy. 
The  student  of  pohtical  economy  who  has  advanced  thus 
far  in  the  present  treatise  cannot  fail,  it  seems  to  me,  to  per- 
ceive the  enlarged  views  which  this  science  opens  upon  the 
condition   and  prospects  of  mankind.      By  the  importance 
which  it  attaches  to  the  influence  of  moral  causes  on  the 
physical  condition,  so  to  speak,  of  society,  it  must  at  once 
assume  a  high  rank  in  his  estimation  among  the  sciences  ;  and 
he  will  not  hesitate  to  hail  the  general  difflision  of  its  doctrines, 
as  not  the  least  important  means  of  contributing  to  the  ad- 
vancement of  the  best  interests  of  his  fellow-men.     It  must 
likewise  be  now  apparent, — to  repeat  the  language  already 
used  in  the  outset  of  this  work, — "  that  no  branch  of  human 
knowledge  exhibits  to  us  more  beautiful  illustrations  of  the 
consistency  of  all  truth."    What,  indeed,  can  be  more  striking 
in  this  point  of  view,  as  well  as  more  gratifying  to  the  philan- 
thropist and  the  christian,  than  the  fact,  so   unequivocally 
cleinonstrated  by  the  political  economist,  that  "  there  is  no 
more  efficient  mode,"  to  repeat  again  my  own  language,  "  of 
promoting  the  physical  well-being  of  a  people,  than  to  diffuse 
among  them,  as  extensively  as  possible,  the  blessings  of  reli- 
gion, of  morals,  and  of  education !"     And  I  think  that  I  shall 
hardly  be  contradicted  by  any  of  my  readers  who  have  care- 
fully read  and  understood  the  contents  of  the  preceding  pages, 
when  I  assert  that  the  general  diffusion  of  religion,  of  morals, 
and  of  education,  would  be  decidedly  the  most  efficient  mode  of 
ensuring  to  the  community  at  large,  as  extensive  a  command, 
as  is  at   all  practicable,  over    the  various  necessaries  and 
luxuries  of  life, — a  proposition,  of  course,  still  more  remark- 
able than  the  one  just  before  mentioned. 


120  THE  PRINCIPLES  OP 


CHAPTER  VIII. 

AN  INCREASE  OF  POPULATION    NOT  A  CRITERION  OF  NATIONAL  PROS- 
PERITY  EMIGRATION  FROM,  AND  IMMIGRATION  INTO,  A  COUNTRY 

IMPORTANCE     OF    CAPITAL    AUGMENTING    AT    AN    UNIFORM    OR 

ACCELERATED  RATE. 

It  must  be  evident,  from  what  precedes,  that  to  assume  the 
fact  of  an  increase  of  the  population  of  a  country  to  be  a 
certain  criterion  of  its  prosperity,  as  some  are  disposed  to 
do,  would  be  to  commit  an  egregious  errour.  Where  the 
capita]  of  the  country  has  not  been  increased  in  a  correspond- 
ing ratio,  or  more  than  a  corresponding  ratio,  the  wages  of 
labour  must  necessarily  have  fallen,  and  the  condition  of  the 
mass  of  the  community  have  become  comparatively  degraded. 

However  desirable,  in  the  ruder  states  of  society,  may  be 
the  acquisition  of  numbers,  with  a  view  to  the  common  defence, 
even  at  such  an  expense  as  has  just  been  mentioned,  this  is 
very  far  from  being  the  case  in  a  more  advanced  period  of 
civilisation,  and  especially  among  the  more  civilised  nations  of 
our  own  age.  Power  depends  now  in  a  much  greater  degree 
on  intelligence  and  wealth  than  on  mere  animal  energy ;  and 
that  people,  who  permit  themselves  to  approximate  in  their 
condition  to  the  limits  of  a  mere  subsistence,  are  prepared 
most  effectually  for  subjugation  to  the  will  of  either  a  domestic 
or  foreign  master. 

Emigration  is  by  many  relied  upon  as  an  infallible  means 
of  curing  the  evils  of  a  redundancy  of  population.  But  it  is 
quite  obvious,  from  the  theory  which  has  been  expounded,  that 
no  benefit  will  accrue  to  a  country  from  the  emigrating  of  a 
portion  of  its  inhabitants,  if  the  expenses  they  incur  in  doing 
so,  together  with  the  property  they  may  take  with  them,  shall 
exceed  the  amount  of  capital  which  would  suffice  to  employ 


POLITICAL    ECONOMY.  121 

and  support  them  at  home ; — excepting  only  the  benefit  to  be 
derived  from  the  remaining  capital  of  the  country  being 
applied  under  somewhat  more  advantageous  circumstances, 
because  applied  to  the  land  under  less  disadvantageous  cir- 
cumstances than  it  would  otherwise  have  been.  This  benefit, 
too,  would  be  experienced  in  only  a  slight  degree, — with  any 
probable  amount  of  emigration, — on  account  of  the  difficulty 
of  transferring  capital  from  agriculture  to  other  employments. 
And  we  may  easily  conceive  the  expenses  of  emigration, 
together  with  the  capital  removed  by  the  emigrants,  to  be 
more  than  enough  to  counterbalance  any  supposable  benefits 
to  be  conferred  on  their  fellow-countrymen. 

If  we,  how^ever,  assume  the  contrary  of  this  to  take  place, 
the  benefit  conferred  will  manifest  itself  in  a  general  rise  of 
wages.  The  very  same  effects  precisely  will  then  ensue  as  in 
the  case  of  a  rise  of  wages  consequent  upon  an  augmentation 
of  capital ;  and  which  eflfects,  having  been  already  sufficiently 
explained,  I  shall  not  repeat. 

It  is  not  denied  that  instances  may  sometimes  occur  of  evils 
resulting  to  a  country  from  emigration,  wholly  independent  of 
any  immediate  and  corresponding  diminution  of  its  wealth. 
It  may  suffer  a  loss,  and  a  very  considerable  loss,  from  the 
general  emigration  of  its  more  intelligent,  skilful,  or  industri- 
ous citizens,  whose  places  can  only  be  very  slowly  supplied. 
Of  this  nature,  for  example,  were  the  consequences  to  France 
of  the  revocation,  by  Louis  XIV.,  of  the  edict  of  Nantes.  But 
measures  of  this  character  have  fortunately  but  seldom  been 
enacted,  even  by  the  most  despotic  and  tyrannical  govern- 
ments ;  and,  in  an  age  of  advancing  intelligence,  the  possibility 
of  their  occurrence  is  scarcely  to  be  admitted  as  in  any 
manner  modifying  our  conclusions  on  the  subject  of  emigra- 
tion. 

With  respect  to  immigration  into  a  country,  on  the  supposi- 
tion of  the  immigrants  being  possessed  of  superior  intelligence, 
skill   in  any   of  the  arts,  or   superior  qualifications  of  any 


122  THE  PRINCIPLES  OF 

description  whatever,  they  will  be  a  gain  to  their  adopted 
country.  If  this  supposition  do  not  hold  good,  the  advantages 
to  be  derived  from  them,  (I  am  referring,  as  I  have  been  all 
along  doing  in  the  present  chapter,  to  the  advantages  exclusive 
of  the  increase  of  population,  which  increase,  other  circum- 
stances being  the  same,  is  unquestionably  a  national  benefit) 
will  depend,  generally  speaking,  on  the  amount  of  capital 
which  they  may  bring  with  them.  If  such  capital  be  insuffi- 
cient for  the  employment  of  labour,  to  an  equal  extent  with 
the  labour  which  they  have  added  to  that  already  employed 
in  the  country,  it  is  plain  that  the  effect  of  the  immigration  in 
question  will  be  to  induce  a  lower  rate  of  wages ;  and  this, 
however  temporary  its  continuance  may  be  on  account  of  the 
diminished  action  of  the  principle  of  population,  is  of  course 
to  be  regarded  as  a  national  evil. 

An  exception  to  the  conclusions  just  deduced  is  presented 
in  the  case  of  foreign  labourers  with  little  or  no  property,  who, 
on  arriving  in  such  a  country  as  the  United  States,  do  not 
enter  into  competition  with  the  natives  in  the  more  thickly 
settled  parts  of  it,  but,  proceeding  to  the  borders  of  the  cul- 
tivated territory,  unite  their  efforts  there  with  those  of  others 
who  are  engaged  in  extending  the  dominion  of  civilised  man 
over  the  wilderness.  In  such  circumstances  it  is  quite  pos- 
sible, as  is  well  known,  that  their  labour  may  add  to,  instead 
of  subtracting  from,  the  power  of  their  neighbours  to  obtain 
the  necessaries  and  luxuries  of  life,  or,  what  is  the  same  thing, 
may  augment,  rather  than  diminish,  the  rate  of  wages. 

Another  exception  to  the  conclusions  which  have  been 
deduced  in  relation  to  the  advantages  or  disadvantages  result- 
ing to  a  country  from  immigration  into  it  from  foreign 
countries,  arises  where  the  immigrants  consist  in  a  greater 
proportion  than  common  of  able-bodied  men.  Even  though 
they  should  be  entirely  destitute  of  property  on  their  arrival, 
it  is  manifest  that  they  may,  quite  possibly,  more  than  com- 
pensate, by  the  greater  proportional  production  which  will 


POLITICAL  ECONOMY.  123 

ensue,  for  the  support  which  they  must  in  the  first  instance 
derive  from  the  capital  of  the  country  at  the  expense  of  the 
labourers  already  employed  in  it. 

It  may  be  mentioned,  that  the  loss  to  any  country,  thus 
resulting  from  the  emigration  of  a  disproportinate  number  of 
able-bodied  men,  is  in  every  respect  similar  to  the  gain  to  be 
derived  by  the  country  to  which  they  emigrate. 

And  to  avoid  being  misapprehended  by  any  of  my  readers, 
it  is  proper  for  me  to  state  distinctly,  that  I  am  far  from 
denying  that  a  greater  amount  of  human  happiness  may,  in 
almost  every  instance,  have  been  produced  by  the  emigration 
of  a  number  of  the  inhabitants  of  one  country  to  another. 
Even  when  the  emigrants  are  wholly  without  property,  the 
advantages  which  they  will  enjoy  may  more  than  counter- 
balance the  inconveniences  occasioned  by  them  to  the  popu- 
lation generally  of  their  adopted  country.  Nor  do  I  mean  to 
call  in  question  the  expediency,  under  certain  regulations,  of 
opening  the  door  to  emigrants  from  abroad,  by  extending  to 
them  the  rights  of  citizenship,  or  conferring  upon  them  privi- 
leges of  a  more  contracted  nature  before  they  become 
citizens.  Indeed,  to  discuss  this  topic  at  all  would  be  to  travel 
wholly  beyond  the  limits  of  a  treatise  on  political  economy. 

The  benefits  derived  by  a  nation,  from  a  rapid  augmenta- 
tion of  its  capital  have  been  fully  explained.  I  will  now 
mention  further  that  it  is  in  a  high  degree  desirable,  however 
rapidly  capital  may  be  augmenting,  that  the  rate  of  its 
augmentation  should  not  be  a  diminishing  one.  Suppose  the 
capital  of  a  district  of  country  to  have  had  ten  per  cent, 
added  to  its  amount  in  a  certain  time.  Now  if  we  likewise 
suppose  the  habits  of  the  people  in  respect  to  marriage  to 
remain  the  same,  wages  will  have  remained  unaltered,  and 
the  population  will  have  augmented  by  one-tenth.  But  if,  in 
the  next  equal  period  of  time,  the  capital  of  the  district  in 
question  shall  not  have  become  greater  in  the  same  propor- 
tion,— if  it  shall  have  augmented  by  one-ninth  only,  instead  of 


124  THE    PRINCIPLES    OF 

one-tenth, — it  is  plain  tliat  population  cannot  augment  as  fast 
as  it  did  before,  unless  we  suppose  a  deterioration  of  the  con- 
dition and  habits  of  the  people ;  and  it  must  also  be  plain, 
that  the  moral  appliances  requisite  to  prevent  such  deteriora- 
tion, will  have  to  become  continually  more  and  more  efficient, 
according  as  the  rate  of  the  augmentation  of  capital  is  dimin- 
ished. Now  as  the  habits  of  a  community  in  respect  to 
marriage  are  only  slowly,  and  with  difficulty,  alterable,  it 
follows,  that  this  rate  should  be  rendered,  if  possible,  an 
increasing,  or  at  least  an  uniform  one.  The  evils,  indeed, 
which  are  consequent  upon  a  diminishing  rate  of  the  augmen- 
tation of  capital  may  be  such  as  to  be  uncompensated  for  by 
the  beneficial  effects  of  a  comparatively  large  augmentation  of 
it  in  a  given  period  of  time ;  and  it  would  be  far  better  to 
sacrifice  something  of  this,  if,  by  so  doing,  that  rate  could  be 
i-endered  an  uniform,  or  more  than  an  uniform  rate. 


CHAPTER  IX. 

EFFECTS    OF  CHEAP  OR  DEAR  FOOD    ON  THE    NUMBERS  AND    CONDI- 
TION OF    A    PEOPLE AND    EFFECTS,  ON  THEIR  NUMBERS,  OF  AN 

EXTRAORDINARY  MORTALITY,    OF    IMPROVEMENTS  IN     MEDICINE, 
AND  OF  THE  MONASTIC  INSTITUTIONS. 

It  has  been  before  stated  that  a  greater  degree  of  industry, 
on  the  part  of  the  labourers  of  a  country  generally,  is  equiva- 
lent in  its  effects  to  those  resulting  from  a  greater  productive- 
ness of  labour.  That  in  some  of  the  most  civilised  nations  no 
improvement  of  the  kind  of  any  moment  is  to  be  expected,  or 
even  desired,  will  be  apparent,  if  we  bear  in  mind  the  number 
of  hours  in  the  day  during  which  their  operatives  are  already 
kept  employed.    There  are  other  nations,  however,  in  which 


POLITICAL  ECONOMY.  125 

the  state  of  things  in  this  respect  is  very  different.  Where  the 
necessary  wants  of  men  are  comparatively  few,  and  where 
education  has  not  exerted  its  power  of  creating  in  them  new 
desires,  they  will  not  readily  forego  \he  pleasures  of  indolence. 
For  illustrations  of  this  position,  we  may  look  at  the  habits  in 
relation  to  industry  of  the  uncultivated  tribes  of  the  more  tem- 
perate climates  of  the  earth,  and  especially  of  those  tribes 
which  dwell  in  the  regions  of  perpetual  summer.  These 
scarcely  need  either  shelter  or  clothing,  and  are  satisfied  with 
a  scanty  portion  only  of  food :  their  enjoyments,  other  than  what 
may  be  obtained  gratuitously  from  the  hand  of  nature,  are 
exceedingly  limited ;  and  they,  accordingly,  are  seldom 
excited  to  any  extraordinary  exertions  of  industry. 

In  every  country  too,  where  the  necessaries  of  life  are 
cheap,  and  the  luxuries  of  life  dear,  the  motive  to  industry, 
(all  other  circumstances,  of  course,  being  supposed  to  be  the 
same)  will  be  very  considerably  less  with  the  mass  of  the 
population,  than  where  luxuries  are  cheap  and  necessaries 
dear;  and  the  immsm  state  of  things  will  be  found  to  be 
decidedly  the  preferable  one  of  the  two.  As  an  illustration 
of  this  position,  let  us  assume  that,  in  a  certain  country,  the 
labourer  can,  by  working  nine  hours  in  the  day,  obtain  what 
constitute  to  him  the  necessaries  of  life,  and  that  he  can 
procure  a  certain  amount  of  luxuries  by  working  one  hour  in 
the  day  more ;  and  let  us  also  assume  that,  in  some  other 
country,  the  case  is  exactly  reversed, — that  the  same  amount 
of  necessaries  are  to  be  had  by  means  of  one  hour's  work, 
and  the  same  luxuries  by  means  of  nine  hours'  work.  The 
reader  cannot  fail  to  perceive,  without  any  argument  on  my 
part,  how  much  greater  probability  there  is  of  the  indolence, 
— I  may  say  the  natural  indolence, — of  the  labourer,  getting 
the  better  of  his  desire  for  the  enjoyment  of  luxuries,  in  the 
latter  case  than  in  the  former. 

The  introduction  of  the  potato  into  Ireland,  as  the  principal 
article  of  food,  has  no  doubt  had  a  tendency,  as  every  other 

17 


126  THE    PRINCIPLES   OP 

improvement  in  the  arts  of  life  would  have  had,  to  augment 
the  population  of  that  country,  and  to  raise  the  wages  of 
labour.  That  the  former  of  these  two  effects  has  actually 
occurred  there,  is  known  to  every  one :  but  that  the  wages 
of  labour  continue  to  be  extremely  low  is  equally  well  known. 
What,  then,  have  been  the  causes  which  have  prevented  their 
rise  ?  It  would  be  irrelevant  to  undertake  to  answer  this 
question  fully ;  and  I  shall  merely  remark,  that  one  of  those 
causes  has,  very  probably,  been  the  cheap  food  of  the  people, 
— cheap  when  compared  with  the  prices  of  what  are  esteemed 
by  them  to  be  luxuries, — rendering  them  less  disposed  than 
they  would  otherwise  be  to  obtain  them.  On  account  of 
this  contraction  of  their  desires  for  luxuries,  while  the  industry 
of  the  people  may  not  have  been  impaired  to  the  same  extent 
as  it  would  have  been  in  a  warmer  and  more  relaxing  cli- 
mate, the  effect,  in  accordance  with  the  theory  of  population 
which  has  been  expounded  in  the  present  book,  has  been  an 
extraordinary  multiplication  of  the  numbers  of  the  people ; 
and  that  amount  of  labour,  which,  had  such  multiplication  not 
taken  place,  would  have  sufficed  to  procure  for  the  workman 
a  certain  portion  of  the  luxuries  as  well  as  necessaries  of  life, 
is  now  scarcely  adequate  to  supply  him  with  what  is  abso- 
lutely necessary  to  enable  him  to  exist. 

Among  the  apparent  anomalies  which  admit  of  an  easy 
explication,  when  the  theory  of  population  is  once  under- 
stood, is  the  greater  prosperity  often  exhibited  by  a  compara- 
tively barren  country  than  by  one  blessed  with  very  superior 
advantages  of  situation  and  soil.  This  ceases  to  be  a  mystery 
which  is  only  to  be  wondered  at,  as  soon  as  we  are  prepared 
to  acknowledge  the  immense  influence  of  moral  causes  in 
determining  the  command  of  the  mass  of  a  community  over 
the  various  enjoyments,  material  as  well  as  immaterial,  of 
life. 

It  is  now  also  easy  to  understand  the  more  remote  effects, 
on  the  numbers  of  a  people,  of  an  extraordinary  mortality,  or 


POLITICAL    ECONOMY.  127 

of  an  increased  rate  of  mortality.  The  first  effect  will,  plainly, 
be  to  augment  the  wages  of  labour ;  the  whole  amount  of 
wages  will  be  distributed  among  a  less  number  of  persons. 
But  even  when  these  specific  wages  are  consumed,  it  will  still 
be  true  that  the  rate  of  wages  will  be  higher  than  they  were 
prior  to  the  supposed  mortality ;  for  the  labour  of  the  com- 
munity will  now  be  more  productive  than  heretofore,  it  being 
applied  under  less  disadvantageous  circumstances.  This 
state  of  things,  however,  will  not  continue.  The  principle  of 
population  will  act  with  an  increased  energy,  and  wages  will 
in  consequence  fall ;  but  they  will  not  fall  to  their  former  level 
precisely,  on  account  of  the  enlarged  desires  of  the  people  for 
enjoyments,  arising  from  their  consumption  for  a  time  of  the 
various  products  of  labour  in  greater  quantity  than  before. 
In  short,  every  thing  will  take  place  in  the  same  manner  as  I 
have  described  in  the  perfectly  analogous  case,  of  a  rise  of 
wages  resulting  from  any  extraordinary  augmentation  in  the 
capital  of  a  country. 

The  instance  of  East  Prussia,  in  the  beginning  of  the  last 
century,  has  already  been  adduced,  as  illustrative  of  the 
energy  with  which  the  principle  of  population  will  act,  when 
disease,  by  thinning  the  ranks  of  a  people,  has  raised  the 
wages  of  labour.  I  may  here  observe  that  the  same  instance, 
as  also  many  others  of  a  similar  kind  occurring  in  other  parts 
of  the  world,  have  been  frequently  referred  to  as  affording 
evidence  to  estabhsh  the  propositions, — that  disease,  war,  and 
every  other  supposable  'positive  check  to  population,  are  in 
reality  no  checks  at  all,  unless  they  act  so  extensively  as  to 
render  it  impossible  for  the  whole  power  of  population,  when 
brought  into  activity,  to  restore  the  numbers  of  a  people, — 
and  that  most  of  the  countries  of  Europe  are  now  quite  as 
populous  as  they  would  have  been  if,  instead  of  being  fre- 
quently engaged  in  bloody  wars  with  each  other,  they  had 
maintained  among  themselves  for  centuries  the  most  peaceable 
relations.    In  proof  also  of  these  positions,  the  very  great 


128  THE  PRINCIPLES  OF 

increase  of  the  population  both  of  Great  Britain  and  of 
France,  during  the  wars  of  the  French  Revolution,  has  been 
cited.  But  surely  this  is  pushing  the  consequences  of  the 
theory  of  population  too  far,  or  rather  mistaking  the  proper 
consequences  of  that  theory.  Even  though  we  should  sup- 
pose no  interval  of  time  to  occur  between  the  death  of  an 
individual  and  the  supplying  of  his  place  by  the  birth  of 
another  individual, — it  must  be  manifest  that  the  quantity  of 
weahh  produced  will  not  be  as  great  as  before.  Many  years 
must  elapse  before  the  infant  just  born  will  be  able  to  perform 
the  work  of  the  deceased  labourer.  But  again,  more  persons 
must  be  born  than  have  died,  in  order  that  they  shall  be 
equally  numerous  with  the  latter  when  they  shall  have  arrived 
at  the  same  age.  Hence,  while  a  diminished  production  is 
taking  place,  there  will  be  also  an  increased  consumption ; 
and  weahh,  and  therefore  population,  will  not  augment  as 
rapidly  as  they  would  otherwise  do.  This,  however,  is  not 
all.  In  every  war,  at  least  every  war  which  might  have  been 
avoided,  there  is  a  great  unproductive  consumption,  that  is  a 
diminution  of  capital,  or  a  diminution,  under  the  most  favour- 
able circumstances,  of  the  rate  at  which  capital  is  increas- 
ing; and  this  implies,  as  has  been  shewn,  a  diminished 
population. 

Improvements  in  medicine,  which  protract  the  lives  of  the 
existing  generation  of  men,  produce  effects,  it  is  evident, 
exactly  the  reverse  of  those  resulting  from  wars  or  any  of  the 
other  causes  of  an  extraordinary  mortality.  The  number  of 
marriages  and  births  will  be  lessened,  but  not  to  the  same 
extent  as  the  number  of  lives  preserved. 

The  theory  of  population  points  out  the  true  mode  in  which 
the  numbers  of  mankind  were  affected  by  the  monastic  insti- 
tutions of  Europe,  and  of  the  other  quarters  of  the  world. 
After  what  has  been  stated,  the  reader  cannot  fail  to  perceive 
that  the  celibacy  of  the  monks  had  no  effect  whatever  on  those 
numbers.     By  omitting  to  marry,  they  only  made  room  for  a 


POLITICAL    ECONOMY.  129 

greater  number  of  marriages  among  the  community  at  large. 
But  in  so  far  as  they  contributed,  by  their  mode  of  life,  to  a 
diminished  production  of  wealth,  the  effect  in  question  will, 
without  doubt,  have  also  been  produced ;  since,  other  circum- 
stances being  the  same,  population  and  wealth  always  aug- 
ment together.  In  this  respect,  however,  the  case  of  the 
monks  is  not  a  peculiar  one.  Whether  any  individual  of  the 
community  contributes,  or  does  not  contribute,  to  the  progress 
of  national  wealth,  depends  of  course  on  the  amount  of  wealth 
produced  by  him,  when  compared  with  what  he  consumes 
unproductively.  Were  the  monks,  then,  productive  labourers  ? 
To  what  extent  was  their  labour  productive  1  And  what  was 
the  comparative  amount  of  their  consumption?  According 
to  the  answers  which  may  be  given  to  these  questions,  will 
they  be  pronounced  to  have  retarded,  or  accelerated,  the  pro- 
gress of  population.  It  is  obvious,  too,  that  those  answers  will 
differ  according  to  the  estimate  which  we  may  form  of  the 
utility,  or  inutility,  of  the  services  rendered  by  them  to  their 
fellow-men. 

Many  more  illustrations  of  the  action  of  the  principle  of 
population  might  here  be  given.  Those  already  adduced  will, 
however,  suffice  for  the  present ;  and  others  will  occur  as  we 
proceed,  when  we  shall  have  first  discussed  some  one  or  two 
topics  not  yet  treated  of,  or  only  touched  upon,  to  which  they 
have  relation. 


130  THE  I'RINCirLES  OF 


BOOK  THIRD. 


THE  THEORIES  OF  MONEY,  AND  OF  BANKING. 


CHAPTER  I. 

ON  THE  COMPARATIVE  VALUE  OF  GOLD  AND  SILVER  MONEY,  IN  DIF- 
FERENT COUNTRIES,  AND  AT  DIFFERENT  TIMES  IN  THE  SAME 
COUNTRY. 

I  SHALL  now  resume  the  consideration  of  the  subject  of 
money, — a  subject,  not  only  of  great  practical  importance, 
but  one  likewise  concerning  which  there  are  as  many  errone- 
ous notions  prevalent,  among  even  the  more  thinking  portion 
of  the  community,  as  perhaps  concerning  any  other  in  the 
whole  range  of  political  economy.  This  science,  too,  presents 
for  discussion  scarcely  any  subject,  of  much  moment,  which 
does  not  require,  in  order  to  be  tlioroughly  understood,  that 
correct  opinions  in  relation  to  money  should  be  first  enter- 
tained. 

And  in  what  is  to  follow,  I  shall  pursue  the  method  adopted 
in  the  preceding  part  of  this  work,  of  supposing  among  a  mul- 
titude of  changes,  all  equally  liable  to  take  place,  only  a  single 
one  in  fact  to  occur, — and  of  tracing  the  various  other  changes 
which  must  then  necessarily  ensue.  By  thus  examining  the 
effects  produced  by  the  separate  action  of  the  different  causes 


POLITICAL  ECONOMY.  131 

of  change,  we  shall  be  enabled  afterwards  to  estimate  cor- 
rectly the  effects  that  any  number  of  them,  acting  conjointly, 
are  calculated  to  produce. 

Let  the  following  suppositions  be  made  ; — that  the  circulat- 
ing medium,  throughout  the  world,  consists  wholly  of  the 
precious  metals,  gold  and  silver;  that  the  supply  of  this 
medium,  as  well  as  of  all  other  commodities,  in  relation  to  the 
demand  existing  for  them,  is  such  as  to  render  the  price  of 
every  thing  the  same  in  every  country ;  and  also,  that  all 
things,  including  money,  can  be  transported  from  place  to 
place  without  any  expense  whatever.  On  these  suppositions 
which,  as  I  proceed,  will  be  varied,  and  rendered  more  con- 
formable to  the  real  state  of  the  facts,  let  us  inquire  what  the 
consequences  will  be  if  the  supply  of  money  become  at  any 
time  greater,  in  some  one  place  or  country,  than  it  has  hitherto 
been. 

The  first  effect  will,  plainly,  be  a  local  rise  of  prices.  A 
motive  will  thus  be  offered  for  importing  commodities,  other  than 
money,  from  other  parts  of  the  world,  and  paying  for  them 
in  money, — and  for  sending  money  abroad,  rather  than  those 
other  commodities  which  were  before  exported  in  exchange 
_for  the  usual  imports.  This  interchange  will,  of  course,  con- 
tinue, until,  by  increasing  at  home  the  supply  of  commodities 
other  than  rnoney,  and  diminishing  that  of  gold  and  silver,  and 
by  diminishing  the  supply  abroad  of  commodities  in  general, 
and  increasing  that  of  gold  and  silver,  the  prices  of  things 
shall  again  become  every  where  the  same.  As,  however,  the 
supply  of  money  in  the  market  of  the  world  will,  obviously, 
have  become  greater  than  it  was  before,  prices  will  every 
where  have  become  somewhat  higher ;  or,  which  is  the  same 
thing,  the  value  of  the  precious  metals  will  have  fallen. 

Here  the  question  presents  itself: — will  this  state  of  things 
be  a  lasting  one  1  It  will  not ;  for  the  capital  applied  to  the 
producing  of  gold  and  silver  will  no  longer  yield  the  usual 
profits.     Less  capital  will,  in  consequence,  be  applied  to  the 


132  THE  PRr>'CIPLES  OF 

working  of  the  mines ;  the  supply  of  those  metals  will  not  be 
sufficiently  great  to  compensate  for  the  consumption  to  which 
the  portion  of  them  in  use  as  money,  or  for  other  purposes,  is 
subjected ;  and  their  value  must  again  rise,  and  prices  fall. 
When  these  shall  have  fallen  to  their  former  level,  it  is 
manifest  that  the  motive  for  employing  a  less  amount  of 
capital  in  mining  will  cease  to  exist,  and  every  thing  will 
return  to  the  state  in  which  it  was  before  the  supposed 
augmentation  of  the  supply  of  money. 

In  shewing,  as  I  have  done,  the  effect  resulting  from  an 
increase  of  the  money  which  circulates  to  be,  first  a  local, 
and  next  a  general  rise  of  prices,  and,  last  of  all,  a  complete 
return  to  the  state  of  things  in  respect  to  money  and  prices 
originallv  existing.  I  have  said  nothinsr  concernincr  the  length 
of  the  period  during  which  the  whole  series  of  changes  is  per- 
formed. At  present,  what  I  wish  my  readers  particularly  to 
note  is  the  result  that  is  ultimately  produced. 

Effects  opposite  to  those  just  mentioned  must  necessarily 
ensue,  when  the  supply  of  money  in  any  country  is  supposed 
to  have  diminished,  instead  of  having  increased.  What  those 
opposite  effects  will  be,  the  reader  can  easily  trace  for  him- 
self. 

Whatever  deviations,  then,  may  occur,  either  in  excess  or 
deficiency,  from  the  ordinary  rate  of  supply  of  the  precious 
metals,  the  consequent  rise  or  fall  of  prices  can  only  be  tempo- 
rary ;  and  the  average  value  of  money  will  now,  it  is  plain,  be 
determined,  like  that  of  every  other  commodity,  by  the  cost 
of  production. 

Hence,  I  may  remark,  the  comparative  values  of  gold  and 
silver  will  be  determined  by  the  cost  of  producino-  them 
respectively.  While,  too,  it  is  only  because  the  cost  of  pro- 
duction, in  reference  to  both  these  metals,  has  been  diminished 
since  the  discovery  of  America,  that  their  value  is  now  much 
less  than  it  was  before  that  event ;  so  it  is  only  because  the 
cost  of  producing  gold  is  about  sixteen  times  as  much  as  that 


POLITICAL  ECOXOMr.  133 

of  producing  silver,  that  the  former  is  sixteen  times  as  valu- 
able as  the  latter. 

As  money  is,  indeed,  only  that  commodity  vs^hich  is  most 
frequently  exchanged  for  every  other,  the  determination  of  its 
value  by  the  cost  of  producing  it  needed  not  to  have  been 
specially  deduced.  I  might  have  safely  taken  for  granted  that 
none  of  my  readers  would  hesitate  to  apply  to  it  the  estab- 
hshed  principles  concerning  the  exchangeable  values  of 
commodities  in  general.  The  reason  why  I  have  not  done 
this  has  been,  simply,  that  I  might  the  more  strongly  inculcate 
a  point  of  so  much  importance,  as  the  proposition  in  question 
will  be  perceived  in  the  sequel  truly  to  be. 

The  conclusions  which  I  have  arrived  at  in  the  present 
chapter  have  been  founded  on  a  number  of  suppositions  ;  one 
of  which  is  that  money  is  synonymous  with  gold  and  silver. 
Let  us  inquire  whether  those  conclusions  will  have  to  be  in 
any  manner  modified,  if  the  supposition  just  stated  be  not 
admitted ;  and  that  it  cannot  be  admitted,  consistently  with 
the  actual  condition  of  things,  is  a  matter  of  notoriety. 

In  the  first  place,  let  money  consist,  not  of  gold  and  silver 
merely,  but  of  gold  and  silver  coin,  that  is  of  pieces  of 
those  metals  having  certain  marks  stamped  upon  them, 
to  certify  that  they  are  of  given  weight  and  fineness.  By 
whom,  or  by  whose  authority,  the  money  is  coined,  would  be  of 
no  more  importance,  for  our  present  purpose,  than  is  its  form, 
or  the  particular  manner  in  which  it  is  divided  and  subdivided, 
did  not  governments  (who  have  every  where  undertaken  to 
be  the  exclusive  coiners  of  money)  sometimes  consent  to  coin 
gold  and  silver  gratuitously,— exchanging  for  bullion  an  equal 
quantity  of  specie  ; — a  measure  which  I  need  not  say  would 
never  be  adopted  by  any  individual,  or  association  of  indivi- 
duals less  numerous  than  the  nation  of  which  they  are  mem- 
bers. When  the  business  of  coining  money  is  thus  performed 
by  government  gratuitously,  or,  speaking  more  correctly,  at 
the  national  expense,  it  is  evident  that,  in  the  case  of  an 

18 


134  THE  PRINCIPLES  OF 

increased  supply  of  money  occurring,  there  is  no  reason  why 
specie,  rather  than  bulHon,  should  be  sent  out  of  the  country 
to  pay  for  the  extraordinary  amount  of  importation,  which  I 
have  shewn  would  necessarily  take  place,  excepting  that  the 
former  has  impressed  upon  it  a  certificate  of  its  weight  and 
fineness,  on  which  a  great  reliance  can  be  put.  This  circum- 
stance, however,  will  cause  it  to  be  sent  abroad,  while  the 
bullion  is  retained  at  home ;  and  the  series  of  consequences 
ensuing  will  be  just  such  as  were  deduced  on  the  supposition 
of  there  being  no  difference  whatever  between  specie  and 
bullion. 

But  if  the  bullion  in  the  country  be  not  exported,  its  price, 
equally  with  that  of  every  other  commodity,  money  excepted, 
will  be  enhanced  ;  which  is  the  same  thing  as  to  say,  that  a 
given  quantity  of  gold  or  silver  is  worth  more  when  uncoined 
than  when  it  is  coined.  The  coin  will  therefore  not  only  be 
exported  from  the  country,  but  a  portion  of  it  will  be  melted 
down  and  converted  into  bullion.  It  is  manifest  that  these 
two  processes  will  be  going  on,  and  will  cease,  simultane- 
ously; so  that  to  suppose  the  money  of  the  world  to  be 
augmented  in  any  degree,  will  imply  that  its  whole  stock  of 
gold  and  silver  is  augmented  in  the  very  same  degree.  Hence 
also,  the  same  conclusions  may  be  drawn,  as  when  the  circu- 
lating medium  was  supposed  to  consist  of  the  precious  metals, 
without  reference  to  their  being  coined. 


POLITICAL  ECONOMY.  135 


CHAPTER  II. 


THE  SAME  SUBJECT  CONTINUED. 


If  a  government,  instead  of  exchanging  coined  money  for 
an  equal  quantity  of  gold  and  silver  in  the  form  of  bullion, 
should  make  a  charge  for  coining, — a  charge  vvrhich  is  deno- 
minated technically  by  the  term  seignorage,  —  the  only 
difference  in  the  series  of  changes  which  I  have  traced  above 
will  be,  that  the  process  of  melting  down  the  coin  and  con- 
verting it  into  bullion,  preparatory  to  its  being  used  in  the 
arts,  will  not  commence  until  the  supposed  depreciation  of 
money  shall  have  proceeded  so  far  as  to  reduce  its  value  to 
that  of  an  equal  quantity  of  bullion.  But  whether  any  portion 
of  the  coin  be  converted  into  bullion,  or  not,  no  extraordinary 
increase  in  the  supply  of  it  can  take  place  without  being 
followed  by  a  partial  exportation  of  it  to  foreign  countries ; 
or,  in  other  words,  by  the  diffusing  of  the  extraordinary  supply 
throughout  the  market  of  the  world ;  and  consequently,  by  the 
diminished  production  of  gold  and  silver,  until  the  former 
state  of  things,  in  respect  to  the  value  of  money,  be  entirely 
restored. 

When  money  was  regarded  as  consisting  of  uncoined  gold 
and  silver,  and  after  the  consequences  had  been  deduced  of  a 
supposed  augmented  supply  of  it,  I  made  the  obvious  remark 
that  precisely  the  contrary  consequences  would  flow  from  a 
diminished  supply  of  it.  It  must  be  now  equally  obvious  that 
exactly  a  similar  remark  may  be  made  in  reference  to  such  a 
supposition,  whatever  may  be  the  relation  which  money  or 
specie  bears  to  the  precious  metals  when  these  have  not  been 
coined.     And,  as  before,  I  will  not  enumerate  those  conse- 


136  THE  PRINCIPLES  OP 

quences,  because  they  cannot  fail  to  be  suggested  to  the  mind 
of  the  reader  without  my  doing  so. 

Coined  money  will,  on  the  average,  have  an  advantage  in 
exchange  over  bullion,  exactly  in  proportion  to  the  confidence 
which  is  generally  reposed  in  the  accuracy  of  what  the  stamp 
upon  it  is  intended  to  certify,  to  wit,  that  it  has  a  certain 
weight,  and  is  alloyed  in  a  certain  fixed  proportion  with 
baser  metal.  This  certificate,  by  enabling  the  coin  to  pass 
current  without  being  assayed  and  weighed,  dispenses  with  a 
certain  amount  of  inconvenience  and  labour,  on  the  part  of 
him  who  receives  it  in  payment  for  other  commodities.  It 
will,  therefore,  bo  preferred  in  the  market  to  bullion,  other 
circumstances  being  the  same,  that  is,  it  will  have  a  greater 
exchangeable  value ;  and  were  the  business  of  coining  left  free 
to  every  one  who  chose  to  engage  in  it,  and  were  it  then 
practicable  (which  would,  evidently,  not  be  the  case)  so  to 
regulate  it  as  to  secure  the  entire  confidence  of  the  commu- 
nity in  its  being  always  faithfully  performed,  the  excess  of  the 
exchangeable  value  of  money  over  that  of  bullion  would  be 
determined  by  the  cost  or  expense  of  coinage. 

And  it  would  not  be  in  the  power  of  government,  by  charg- 
ing a  higher  seignorage  than  is  sufficient  to  compensate  the 
inconvenience  and  trouble  above  mentioned,  to  add  any  thing 
to  the  value  of  the  coin.  In  order  the  better  to  perceive  this 
impossibility,  let  us  look  at  a  particular  case.  Suppose  ten 
dollars  to  be  the  value  of  an  eagle ;  comprising  in  that  value, 
not  only  the  value  of  the  gold  contained  in  the  eagle,  but  also 
the  compensation  in  question.  Now  let  the  government  not 
rest  satisfied  with  receiving  only  ten  dollars  for  the  eagle, 
when  it  is  issued  from  its  mint,  but  endeavour  to  obtain  an 
additional  value  for  it,  by  means  of  an  augmented  seignorage. 
Let  it,  for  instance,  declare  the  eagle  to  be  worth  eleven, 
instead  of  ten  dollars.  What  will  be  the  consequence  ?  Will 
the  piece  of  money,  whose  nominal  value  has  thus  been  arbi- 


POLITICAL  ECONOMY.  137 

trarily  raised  a  dollar,  have  its  real  value  in  exchange  raised 
to  the  same  extent  ?  Certainly  not.  No  one  will  be  willing  to 
give  any  more  for  it  than  is  sufficient  to  procure  in  the  market 
an  equal  quantity  of  gold  bullion,  together  with  the  cost  or 
expense  of  assaying  and  weighing. 

Hence  it  is  plain  that  the  possessors  of  the  precious  metals 
will  not  have  a  sufficient  inducement  to  bring  them  to  the  mint 
of  government  to  be  coined;  and  the  coining  of  money  would 
be  altogether  out  of  the  question,  excepting  where  the  govern- 
ment is  itself  a  producer  of  gold  or  silver, — or  where  it  exacts 
a  certain  portion  of  the  produce  of  the  mines  from  those  whom 
it  permits  to  work  them, — or  where  it  obtains  them  in  pay- 
ment of  taxes. 

In  as  much,  Hkewise,  as  a  higher  seignorage  than  is  suffi- 
cient to  repay  the  expense  of  coinage  will  have  no  effect  on 
the  real  prices  of  things,  or,  in  other  words,  on  the  quantity  of 
gold  or  silver  for  which  they  will  exchange,  we  may  con- 
clude that  such  a  measure  will  have  no  tendency  either  to 
accelerate,  or  retard,  that  exportation  or  importation  of  money 
in  payment  for  commodities,  imported  or  exported,  as  the  case 
may  be,  by  means  of  which  the  equable  diffusion  of  the  circu- 
lating medium  of  the  world  is  effected. 

The  supply  of  money  has  been  supposed,  under  certain  cir- 
cumstances, to  vary.  Let  us  now  suppose  the  demand  for 
money  to  become  in  some  one  country  either  greater  or  less, 
while  the  supply  of  it  continues  unaltered ;  and,  first,  let  the 
demand  for  it  be  diminished.  This  supposition,  the  reader 
will  perceive,  is  equivalent  to  that  of  an  augmented  supply  ; 
for  it  implies  a  greater  willingness  than  before,  on  the  part  of 
the  holders  of  money,  to  dispose  of  it  in  exchange  for  other 
commodities.  It  is  true  that  the  actual  quantity  of  money 
will  not  have  been  increased  by  the  occurrence  of  a  less 
demand  for  it  than  before  ;  but  its  efficiency,  as  a  medium  of 
exchange,  will  have  increased  exactly  in  proportion  as  its 
circulation  is  quickened.    When,  for  example,  the  rapidity  of 


138  THE    PRINCIPLES  OP 

circulation  is  doubled,  an  hundred  dollars  will  perform  the 
same  number  of  exchanges  which  two  hundred  did  before, 
and  the  very  same  consequences  must  follow  as  if  the  circu- 
lating medium  had  been  doubled  in  quantity ;  and  so  too,  in 
whatever  other  ratio  that  rapidity  may  be  supposed  to  have 
become  augmented.  Should  the  demand  for  money  be  greater, 
instead  of  less  than  it  was,  it  will,  of  course,  circulate  more 
slowly,  and  the  series  of  consequences  ensuing  will,  manifestly, 
be  the  same  as  results  from  a  diminution  in  the  supply  of 
money. 

If  we  suppose  the  supply  or  demand  in  respect  to  any 
commodity,  different  from  money,  to  vary,  every  one  knows 
that  its  price  will  suffer  alteration.  There  may  be  either  a 
rise  or  fall  of  price.  When  a  rise  takes  place,  an  importation 
from  abroad  of  the  commodity  will  follow,  which  will  be  paid 
for  in  money  (all  other  circumstances,  including  the  price  of 
every  thing  else,  remaining  unchanged) ;  and  the  importation 
of  it,  and  payment  for  it,  will  go  on  together,  until  by  dimin- 
ishing the  supply  of  it,  and  increasing  that  of  money  at 
home,  and  by  increasing  the  supply  of  it,  and  diminishing 
that  of  money  abroad,  its  price  will  be  again  every  where  the 
same.  The  like  equalisation  of  prices  throughout  the  world,  it 
can  be  shewn,  will  take  place,  in  case  they  should  h3.ve  fallen 
below  their  usual  rate. 

Whether,  then,  the  relations  of  supply  and  demand,  which 
ordinarily  subsist  in  any  country,  are  disturbed  by  an  alteration 
in  the  supply  of,  or  demand  for  money,  or  whether  those  rela- 
tions are  disturbed  by  an  alteration  in  the  supply  of  or  demand 
for  any  thing  else,  such  disturbance  will  more  or  less  rapidly 
cease ;  and  an  entire  equality  in  the  prices  of  all  things  will 
be  every  where  eventually  re-estabhshed.  Since,  however, 
such  disturbances  will  be  continually  occurring,  this  equality 
of  prices  will  seldom,  in  fact,  be  found  to  subsist,  and  prices, 
in  the  various  regions  of  the  globe,  will  be  continually  oscil- 
lating, within  certain  Hmits,  about  the  equated  rates,  if  I  may 


POLITICAL  ECONOMY.  139 

use  this  expression, — having  all    the  while  a    tendency  to 
become  equal  to  them. 

We  have  now  arrived  at  the  conclusion,  that  so  long  as  the 
money  of  the  world  consists  exclusively  of  gold  and  silver, 
whether  in  bullion  or  coined,  and  whether  any  seignorage  be 
charged  or  not  by  the  government  for  coining  it, — and  so 
long,  too,  as  we  take  no  account  of  the  cost  of  transporta- 
tion,— the  prices  of  things  will  every  where  tend  to  an  equality. 
Those  prices,  moreover,  will  have  a  tendency  to  be  at  such 
a  rate  as  just  to  repay  the  cost  of  production, — on  the  one 
hand,  to  the  producer  of  the  precious  metals, — and,  on  the 
other,  to  the  producers  of  the  different  commodities  for  which 
they  are  exchanged.  In  other  words,  just  so  much  of  any 
commodity  will,  on  the  average,  be  sold  for  a  given  sum  of 
money,  as  is  equal  to  it  in  cost. 


CHAPTER  III. 


THE  SAME  SUBJECT  CONTINUED. 


Let  us  now  remove  the  supposition  of  the  transportation  of 
commodities  being  effected  without  expense.  It  is  evident 
that  their  prices  will  then  not  tend  to  a  perfect  equality 
throughout  the  various  countries  of  the  world, — and  that  the 
price  of  any  article  may  differ  permanently  in  one  country 
from  what  it  is  in  another,  by  the  expense  of  transporting 
from  one  to  the  other  the  article  concerned,  as  well  as  the 
money  for  which  it  is  exchanged.  The  reader  will  also,  on  a 
moment's  reflection,  perceive  that  the  expense  of  transporta- 
tion, using  this  term  most  comprehensively,  is  the  only  reason 
why  the  prices  of  things  would  not  be,  in  reality,  every  where 


140  THE  PRINCIPLES  OF 

the  same, — so  long,  at  least,  as  the  commerce  between  nations 
is  entirely  free  from  all  legislative  restrictions. 

I  may  here  mention,  that  there  is  nothing  in  the  deviation 
of  the  prices  of  things  from  an  entire  and  universal  equality, 
induced  by  the  expense  of  transportation,  to  prevent  those 
prices  from  being  determined,  in  the  several  countries  of  the 
world,  by  the  cost  of  producing  the  precious  metals,  in  the 
manner  heretofore  explained. 

In  respect  to  copper  money,  to  the  extent  in  which  it  per- 
forms the  functions  which,  if  it  did  not  exist,  would  be 
performed  by  gold  or  silver  money,  will  the  effects  of  its  use 
be  manifestly  equivalent  to  those  resulting  from  the  circula- 
tion it  thus  displaces.  It  is  scarcely  necessary  for  me  to 
remark,  that  the  existence  of  such  a  circulation  as  that  now 
adverted  to  can  in  no  wise  modify  the  conclusions  already 
arrived  at  in  respect  to  the  general  equalisation  of  prices,  and 
to  their  determination  in  every  country  by  the  cost  of  produc- 
tion, both  in  respect  to  money  and  the  commodities  purchased 
by  it.  And  by  the  general  equalisation  of  prices,  I,  of  course, 
now  mean  their  equalisation  within  the  limits  prescribed  by  the 
expense  of  transportation. 

Before  inquiring  into  the  effects  of  the  introduction  of  paper 
money,  I  will  make  a  remark  or  two  having  relation  to  the 
matters  treated  in  the  preceding  chapter,  chiefly  for  the  pur- 
pose of  guarding  against  the  possibility  of  my  meaning  being 
misapprehended. 

I  remark,  in  the  first  place,  that  the  argument  which  has 
been  adduced  to  prove  the  impossibility  of  augmenting  the 
exchangeable  value  of  the  money  of  a  country  by  means  of 
the  exacting,  on  the  part  of  the  government,  of  a  higher  seign- 
orage  than  is  adequate  to  compensate  the  toil  and  trouble  of 
assaying  and  weighing,  is  equally  applicable  to  every  attempt 
to  add  to  the  exchangeable  value  of  the  money  put  into  circu- 
lation, by  assigning  to  it  a  greater  value  nominally,  or,  what 


POLITICAL  ECONOMY.  141 

amounts  to  the  same  thing,  by  causing  money  to  be  coined  of 
the  same  nominal  value  as  before,  but  containing  a  diminished 
amount  of  the  precious  metals. 

In  the  next  place,  it  may  be  proper  for  me  to  meet  an  objec- 
tion which  may  perhaps  be  made  to  the  position  I  have 
assumed  to  be  an  obvious  one, — that  a  diminished  demand  for 
money  impUes  an  augmented  rapidity  in  the  rate  of  its  circu- 
lation, and,  on  the  other  hand,  that  an  augmented  demand 
for  it  implies  a  diminished  rate  of  circulation.  Some  persons 
might  be  disposed  to  maintain  the  opposite  of  this  to  be  true. 
They  might,  and  it  must  be  acknowledged  with  some  appear- 
ance of  plausibility,  argue,  for  example,  that  a  man  never 
makes  a  greater  demand  for  money  than  when  he  is  anxious 
to  obtain  it  in  order  to  fulfil  the  pecuniary  engagements  into 
which  he  may  have  entered,  and  when  he  is,  consequently,  the 
least  disposed  to  retain  it  in  his  possession  after  he  has 
obtained  it ;  so  that  it  is  precisely,  they  might  go  on  to  say, 
when  the  demand  for  money  is  the  greatest,  that  it  circulates 
most  rapidly.  So  too,  the  circulation  of  it  takes  place  at  the 
slowest  rate,  precisely  when  the  demand  for  it  is  the  least. 
To  all  this,  however,  I  reply,  that  if  we  take  this  anxiety  of  the 
members  of  a  community  to  obtain  money  to  be  evidence  of 
their  demand  for  it  being  great,  we  ought,  consistently,  to 
regard  their  anxiety  to  part  with  it  in  payment  of  their  debts, 
as  an  evidence  of  their  demand  for  it  being  small ;  and  as 
these  two  anxieties,  from  the  nature  of  the  case,  are  equal  to 
one  another,  we  will  be  left  without  any  means  whatever  of 
determining  the  extent  of  the  demand  actually  existing  at  the 
time  for  money.  But  I  have  employed  the  term  demand,  in 
reference  to  money,  in  a  sense  different  from  that  which  has 
just  been  considered,  and  in  one  perfectly  analogous  to  its 
ordinary  acceptation  when  we  speak  of  commodities  other 
than  money.  When  the  demand  for  broadcloth,  for  instance, 
is  said  to  be  greater  than  it  has  hitherto  been,  a  greater  desire 
than  before  must  necessarily  exist  for  the  possession  of  broad- 

19 


142  THE  PRINCIPLES  OF 

cloth,  to  be  used  or  consumed,  sooner  or  later,  by  its  owner. 
It  is  in  consequence  of  the  existence  of  such  a  demand  as  tiiis, 
that  the  merchant  who  deals  in  the  article  will  be  more  desirous 
than  he  has  heretofore  been  to  purchase  it.  as  well  as  to  sell  it 
to  his  customers,  and  that  he  will  thus  add  his  demand  to  that 
already  existing.  In  like  manner,  the  demand  for  money  is 
correctly  said  to  have  become  greater,  when  people  generally 
are  more  disposed  than  they  previously  were  to  retain  it  in 
their  possession  for  future  use.  Here  again  the  analogy  is 
complete,  in  this  respect, — that,  on  account  of  the  prevailing 
desire  to  keep  more  money  in  possession  or  reserve  for  future 
use,  the  merchants  will  likewise  make  a  greater  demand  for 
for  it  by  declining  to  supply  themselves  as  extensively  as  they 
did  before,  with  other  commodities. 

Another  remark  which  I  have  to  make  is,  that  when  in  the 
preceding  chapter  I  spoke  of  prices  being  dependent,  in  the 
several  countries  of  the  world,  on  the  cost  of  producing  the 
precious  metals,  I  had  reference,  as  well  to  the  countries 
whose  stock  of  those  metals  was  procured  from  abroad,  as  to 
countries  v/here  they  were  extracted  from  the  earth  by  mining, 
or  by  means  of  any  other  process.  When  the  source  from 
which  a  commodity  is  supplied  to  us  is  a  foreign  one,  every 
dollar's  value  imported  implies  the  exportation  of  a  certain 
value  to  pay  for  it.  Now  if  the  exports  be  the  product  of  the 
capital  and  labour  of  the  country  whence  they  are  sent  abroad, 
the  imports  may  surely  be  regarded  in  the  same  light.  The 
former  are,  in  fact,  only  instruments  for  procuring  the  latter ; 
and  the  labour  and  capital  appUed  to  the  producing  of  the 
former  are  truly  applied  to  the  first  stages  in  the  production  of 
the  latter, — the  remaining  stages  of  their  production  being  the 
act  of  transporting  both  exports  and  imports  to  their  respective 
places  of  destination.  Hence  it  is  that  we  may  speak,  with 
entire  propriety,  of  the  cost  to  us  of  producing  the  precious 
metals,  even  though  not  a  particle  of  them  should  be  of 
domestic  origin. 


POLITICAL    ECONOMY.  143 


CHAPTER  IV. 

EFFECTS  OF  THE  USE  OF  PAPER   MONEY. 

To   simplify  as  much   as  possible   the   subject   of  paper 
money,  let  us,  at  first,  suppose  all  money  of  the  kind  to  have 
the  well  known  form  of  bank  notes.     Also  for  the  sake  of 
simplication,   let  us  suppose    a  particular   case ;  —  that  the 
metallic  money  in  circulation  in  some  one  country,  or  region 
of  country, — say  the  state  of  Pennsylvania, — is  equivalent  to  a 
specie  circulation  of  a  million  of  dollars,  and  that  no  paper 
money  has  as  yet  been  introduced.    In  this  condition  of  things, 
banks  are  estabhshed,  which  add  to  the  circulating  medium 
one  hundred  thousand  dollars  in  notes  representing  specie, 
that  is  payable  by  the  issuers  to  the  holders  of  them  in  specie 
on  demand.     And,  again  for  the  sake  of  simplication,  let  it  be 
supposed  that  this  addition  to  the  money  previously  in  circula- 
tion is  uniformly  diffused  over  the  state ;  so  that  every  man 
having  before  $100  shall  come  to  possess  $110,  and  that 
every  man  having  $1000  shall  possess  $1100, — and  so  on  in 
like  proportion.     There  must,  evidently,  be  a  general  rise  of 
prices  ;  just  as  if  the  augmentation  of  the  circulating  medium 
had  consisted  of  specie,  instead  of  paper.     What  before  sold 
for  ten  dollars  will  be  sold  for  eleven.      An  extraordinary 
importation  of  commodities,  other  than  money,  and  exporta- 
tion  of    money,   in  payment   for   these,  will   ensue.      The 
$100,000,  added  to  the  circulation  of  the  state  of  Pennsylva- 
nia, will,  in  this  manner,  become  an  addition  to  the  circulating 
medium  of  the  world,  and  will  be  so  diffused  among  the 
different  nations  composing  it,  as  to  cause  an  equal  rise  of 
prices  in  all  of  them  ; — or,  in  other  words,  the  increase  of  the 
money  of  each  country  will  be  proportional  to  the  quantity  of 
money  which  it  previously  possessed.     As  before  explained,  in 


144  THE  PRINCIPLES  OF 

reference  to  the  case  when  nothing  but  specie  was  supposed 
to  circulate, — there  will  now  too  be  a  diminished  production 
of  the  precious  metals,  until  prices  fall  to  their  former  level, 
and  are  again  just  such  as  to  repay  the  cost  of  production  to 
all  the  parties  concerned. 

I  have  said,  until  prices  fall  to  their  former  level.  Here 
there  is  a  slight  inaccuracy.  While,  if  the  addition  which 
was  made  to  the  circulating  medium  had  consisted  of  specie, 
the  quantity  of  gold  and  silver  required  to  supply  the  wear  of 
the  coin,  as  well  as  for  other  purposes,  would,  after  prices 
had  fallen  to  their  original  rates,  be  what  it  was  before, — 
such  will  not  be  the  case  when  the  circulation  is  augmented 
by  an  issue  of  paper  money.  Indeed,  were  the  prices  of  things 
then  to  subside  to  their  former  level,  it  is  plain  that,  although  the 
former  amount  of  gold  and  silver  made  use  of  in  the  arts  will 
be  again  made  use  of  in  them,  the  amount  required  in  repair- 
ing the  wear  of  the  coin  will  be  less  than  before,  on  account 
of  the  diminution  of  the  quantity  of  the  coin  in  circulation. 
On  the  whole,  therefore,  those  metals  will  not  need  to  be  pro- 
duced in  as  great  abundance  as  previous  to  the  issue  of  the 
paper  which  caused  the  temporary  rise  of  prices.  Hence 
too,  they  could  not  be  produced  as  abundantly  without 
depreciating  in  value,  so  as  not  to  yield  the  producers  of  them 
the  ordinary  profits  on  the  capital  employed  ;  and  they  will, 
accordingly,  not  be  produced  as  abundantly.  A  transfer  of 
capital  and  labour  will  take  place,  to  a  certain  extent,  from 
the  business  of  mining  to  other  employments ;  the  worst  mines 
will  be  neglected ;  and  the  capital  which  will  remain  invested 
in  mining  will  be  invested  under  more  advantageous  circum- 
stances than  the  capital  was  heretofore  invested.  Now  that 
cost  of  producing  any  commodity  which  determines  its 
exchangeable  value  being  always  the  cost  of  producing  it 
under  the  most  disadvantageous  circumstances  in  which  it  is 
actually  produced, — it  will,  in  the  instance  under  considera- 
tion, have  been  lessened.      Money  will,  consequently,  have 


POLITICAL  ECONOMY.  145 

become  less  valuable;  and  prices  will,  of  course,  have 
ultimately  risen  in  a  certain  degree,  though  in  comparatively 
a  very  slight  degree. 

The  modification  just  stated,  of  a  proposition  previously 
deduced,  may  possibly  seem  to  some  of  my  readers  to  be  so 
very  inconsiderable  as  to  render  it  scarcely  worthy  of  the 
notice  I  have  bestowed  upon  it ;  and  my  motive  for  touching 
here  upon  it  at  all  has  been  simply  a  desire  to  exhibit  my 
views  in  as  unobjectionable  a  form  as  it  is  in  my  power  to 
do. 

But  to  proceed  :  it  is  obvious  that  the  preceding  deduction 
of  the  effects  resulting  from  the  supposed  issue  of  f  100,000  in 
paper  money  will  hold  good,  to  whatever  extent  the  issue  of 
paper  money  may  have  taken  place,  so  long  as  there  is  specie 
procurable  for  exportation ;  and  specie  will  be  always  pro- 
curable for  exportation,  so  long  as  the  banks  fulfil  their 
promise  of  paying  it  for  their  notes  on  demand.  What  will 
happen  if  the  issue  of  paper  money  should  go  beyond  the 
amount  which  has  been  mentioned,  will  be  a  subject  of  future 
inquiry. 

The  manner  in  which  the  foregoing  conclusions  must  be 
modified,  on  account  of  the  expense  of  the  transportation  of 
commodities,  is  the  same,  evidently,  as  was  explained  in  the 
analogous  case  of  the  supply  of  money  having  been  augmented 
by  an  addition  to  it  of  specie.  I  will  here  only  say  farther, 
what  is  sufficiently  manifest,  that  the  inequality  which,  after 
the  supply  of  money  has  been  augmented  in  some  one  country, 
may  continue  to  subsist  between  the  price  of  a  commodity 
there  and  in  any  other  country,  will  depend,  other  cir- 
cumstances being  the  same,  on  the  distance  which  those 
countries  are  apart  from  each  other ; — and  consequently,  that 
a  given  augmentation  of  the  circulating  medium  will  be 
diffused  somewhat  more  densely,  so  to  speak,  in  those  states  or 
countries  which  lie  contiguous  to  that  where  it  has  occurred, 
than  in  those  situated  more  remote. 


146  THE  PRINCIPLES  OF 

Had  the  increase  of  the  circulating  medium  of  Pennsylvania 
not  been  equally  diffused  throughout  the  state,  as  was  assumed 
to  be  the  case,  it  is  quite  evident  that  the  soundness  of  the 
conclusions,  to  which  we  have  been  led,  would  not  be  in  the 
least  affected.  The  only  difference  in  the  steps  of  our  reason- 
ing would  be,  that  prices  will,  in  the  first  instance,  rise 
unequally  in  different  places  in  the  state ; — all  which  places 
may  then  be  regarded  in  the  same  light  as  the  whole  state 
was  before  regarded,  viz.  as  so  many  distinct  sources  whence 
paper  money  has  been  issued,  and  whence  money  is  exported 
in  exchange  for  other  commodities ;  thus  equalising  prices 
(within  the  limits,  of  course,  prescribed  by  the  expense  of 
transportation)  throughout  the  state  of  Pennsylvania,  as  well 
as  every  where  else. 

When  paper  money  is  issued  in  any  one  part  of  a  country, 
it  is  very  possible  that  its  credit  may  be  sufficiently  good  to 
occasion  it  to  be  exported,  instead  of  specie,  to  neighbouring, 
or  even  to  more  distant  parts,  in  exchange  for  commodities. 
It  is  scarcely  necessary  for  me  to  remark  that  this  case,  hke- 
wise,  will  furnish  no  exception  to  the  correctness  of  the  results 
to  which  we  have  arrived.  The  paper  money,  in  this  manner 
made  to  constitute  a  portion  of  the  circulation  in  other  parts 
of  the  country,  will  have  the  same  effect  upon  prices,  and  will 
induce  the  same  series  of  changes,  as  if  it  had  been  issued 
where  it  circulates. 

Again,  in  what  goes  before,  the  banks  of  Pennsylvania 
were  supposed  to  add  $100,000  in  paper  to  a  specie  circu- 
lation amounting  to  a  million  of  dollars.  I  may  observe  that 
the  possibility  of  their  doing  so  will  depend  upon  their  first 
procuring  from  abroad  the  specie  which  they  will  retain  in 
their  vaults,  and  on  which  their  banking  operations  are  to  be 
based.  If  they  have  to  take  this  specie  from  that  which  at 
the  time  is  actually  circulating,  they  will  have  to  issue  their 
notes  to  an  amount  as  much  exceeding  the  $100,000,  by  which 
the  circulating  medium  is  to  be  increased,  as  is  equal  to  that 


POLITICAL  ECONOMY.  147 

of  the  specie  thus  taken.  If  $50,000  be  deposited  in  the 
vaults  of  the  banks,  they  must  issue  paper  to  the  amount  of 
$150,000,  in  order  that  the  effect  specified  may  be  produced, 
and  that  prices  may  rise  in  the  proportion  of  ten  to  eleven. 

Another  modification  to  be  applied  to  what  has  been  deduced 
concerning  the  effects  of  paper  money  is,  that  the  same 
amounts  in  specie  and  in  bank  notes  may  not  be  equally 
efficient  in  performing  the  functions  of  circulation.  The  effi- 
ciency, in  this  respect,  of  every  kind  of  money,  depends,  not 
only  on  its  quantity,  but  also  on  the  rapidity,  as  has  been 
already  mentioned,  with  which  it  circulates.  Now,  bank 
notes  will  frequently  circulate  more  rapidly  than  specie,  on 
account  of  the  greater  facility  of  transporting  or  remitting 
them  from  one  place  to  another.  An  addition,  therefore,  of 
$100,000  in  paper  of  that  description,  to  the  money  of  a 
country,  may  be  more  than  equivalent,  in  its  effects  on  present 
prices,  to  a  like  addition  to  it  made  in  specie.  But  whether  the 
paper  be  more  or  less  than  equivalent  in  efficiency  to  specie,  all 
the  conclusions  which  have  been  deduced,  concerning  the 
distribution  of  the  circulating  medium,  would  still  be  true, 
provided  only  we  vary  our  supposition  of  $100,000  in  bank 
notes  having  been  added  to  the  circulating  medium,  by  sup- 
posing this  medium  to  have  been  augmented  by  just  such  an 
amount  in  bank  notes  as  is  equivalent  in  its  effects  to 
$100,000  of  the  money  originally  circulating. 


148  TUE   PRINCIPLES    OF 


CHAPTER  V. 


OF  THE  DIFFERENT  CONSTITUEXT  PORTIONS   OF    THE    CIRCULATING 
MEDIUM  ;    AND  THEIR  RELATIVE  EFFICIENCY. 

Bank  notes,  whether  issued  by  incorporated  companies,  or 
by  private  bankers,  are  not  the  only  substitutes  for  s-pecie  ; 
and  they  are  not  even  the  only  kind  of  paper  money.  Tlie 
circulating  medium  must,  indeed,  be  regarded  as  comprehend- 
ing every  contrivance  which  performs  the  oflice  of  money, 
and  by  means  of  which,  therefore,  the  use  of  any  other 
medium  of  exchange  may  be  partially  dispensed  with.  Such 
contrivances  are  of  various  sorts.  Besides  the  notes  of  bank- 
ers, which  are  promises  for  the  payment  of  a  certain  amount 
of  specie  to  the  bearer  on  demand,  the  common  promissory 
notes  of  individuals,  in  which  they  engage  to  pay  a  sum  of 
money  at  a  future  day  for  value  received  by  them,  may  be 
transferred  from  one  individual  to  another  in  payment  for 
commodities  purchased,  and  so  may  be  made  use  of  for  the 
very  same  purposes  as  those  are  employed  to  accomplish,  to 
which  the  term  money,  ordinarily  so  called,  is  applied.  Bills 
of  exchange,  that  is  orders  or  drafts  for  money  by  creditors 
upon  their  debtors  residing  at  a  distance,  or  by  merchants  or 
bankers  on  their  correspondents,  in  favour  of  third  persons, 
are  in  the  same  predicament.  Payments  may  be  made  by 
simply  removing  an  entry  in  the  books  of  a  banker  to  the 
credit  of  one  individual,  and  entering  the  amount  of  it  to  the 
credit  of  some  other  individual.  The  bank  checks,  or  orders 
upon  the  banker  for*  payment  of  the  moneys  deposited  with 
him  for  safe  keeping,  may  themselves  be  passed  from  hand  to 
hand,  and  thus  be  made  to  take  the  place  of  money.  The 
same  is  obviously  true  concerning  every  sort  of  public  secu- 
rities, and  every  representative  whatever  of  property.    Each 


POLITICAl  ECONOMY.  149 

of  the  contrivances  enumerated  constitutes  a  portion  of  the 
circulating  medium,  the  efficiency  of  which  is  to  be  estimated, 
as  well  in  proportion  to  the  comparative  rapidity  of  its  circu- 
lation, as  to  its  value  in  exchange.  And  the  effects  on  prices, 
as  also  the  farther  changes  which  will  be  consequent  upon 
those  effects,  when  any  one  or  more  of  these  constituent 
elements  of  the  circulation  are  augmented  in  quantity  or  in 
the  rapidity  with  which  they  perform  the  office  of  money, 
will,  of  course,  be  entirely  similar  to  what  the  effects  on 
prices,  and  the  further  changes  resulting,  have  been  shown  to 
be  in  the  case  of  bank  notes. 

The  contrary  effects  must  necessarily  take  place,  if  we 
suppose  either  of  the  above  contrivances,  or  species  of  paper 
money,  to  perform  the  office  or  functions  of  money  less 
rapidly  than  they  did  before. 

It  must,  next,  be  apparent  to  the  reader  that,  if  we  knew 
to  what  extent  those  various  contrivances,  including  bank 
notes,  supply  the  place  of  hard  money, — having  respect  as 
well  to  rapidity  as  to  quantity, — we  should  find  no  difficulty 
in  estimating  what  the  amount  of  the  circulating  medium 
would  be,  did  it  consist  exclusively  of  the  precious  metals ; 
and  in  speaking  of  the  amount  of  the  circulation  in  any  one 
country,  as  compared  with  others,  or  with  the  world  in 
general,  it  is  such  an  estimate  as  this  which  should  always  be 
made. 

And  it  is  also  easy  to  perceive  what  an  errour  we  should 
fall  into,  were  we  to  look  upon  the  whole  circulation  of  a 
country, — more  especially  of  one  in  as  high  degree  commer- 
cial as  the  United  States  or  Great  Britain, — as  consisting 
only  of  the  specie  which  circulates,  and  of  the  bank  notes 
which  are  made  payable  to  the  bearer  on  demand. 


20 


150  THE  PRINCIPLES    OF 


CHAPTER  VI. 

THE    VALUE     OF     THE     ENTIRE      CIRCULATING    MEDIUM    REMAINS 
ALWAYS  UNALTERED CONSEQUENCES  FROM  THIS  PRINCIPLE. 

The  following  proposition  is  an  obvious  inference  from  the 
principles  already  established, — that,  no  matter  to  what 
extent  the  circulating  medium  of  a  country  may  at  any  time 
have  been  augmented  or  diminished,  its  value  always  remains 
unaltered ;  the  effect  of  such  augmentation  or  diminution  on 
the  prices  of  things  being  to  raise  them  in  the  one  case,  and 
to  lower  them  in  the  other,  in  the  same  proportion.* 

Hence  too,  (notwithstanding  the  apprehensions  which  are 
so  frequently  expressed  among  ourselves,  even  by  persons 
whose  opinions  generally  are  entitled  to  a  considerable  degree 
of  respect,  lest  the  United  States  might  not  possess  a  circu- 
lating medium  large  enough  for  the  business  pui'poses  of  the 
community) — it  is  a  matter  of  not  the  least  mmnent  whether 
this  medium  he  great  or  small.  Whatever  in  any  country  may 
be  the  amount  of  it,  if  we  suppose  it  to  be  reduced  to  the 
tenth  part  of  that  amount,  the  prices  of  things,  as  has  been 
shewn,  will  likewise  become  only  the  tenth  of  what  they  are ; 
and  an  hundred  dollars  will  perform  precisely  the  same  func- 
tions which  are  now  performed  by  a  thousand.  The  difficulty 
of  procuring  the  former  sum  will,  indeed,  be  quite  as  great  as 
is  at  present  that  of  procuring  the  latter ;  but  these  sums  of 

*  There  is  a  reason  why  the  prices  of  all  things  will  not  rise  or  fall  in  the  pre- 
cise proportion  of  the  augmentation  or  diminution  of  the  circulating  medium  ; 
or,  at  least,  why  this  will  be  the  case  only  after  a  certain  period  shall  have 
elapsed.  Some  commodities  ordinarily  fluctuate  in  value  much  less  than  others ; 
and  labour  is  such  a  commodity.  A  customary  rate  of  wages  comes,  indeed,  to 
be  paid,  in  every  place  and  in  every  employment ;  which,  because  it  is  a  custom- 
ary rate,  is  only  slowly  alterable. 


POLITICAL    ECONOMY.  151 

money  will,  in  the  two  cases,  possess  the  very  same  exchange- 
able value,  and  will,  on  this  account,  bestow  upon  their  owner 
a  command  to  an  equal  extent  over  the  various  necessaries  and 
luxuries  of  hfe.  I  need  not  say  that  our  general  conclusion 
will  not  be  different,  though  we  should  suppose  the  diminution 
of  the  circulating  medium  to  occur  in  any  other  proportion 
than  that  of  ten  to  one. 

It  is  true  we  may  conceive  the  circulating  medium  to  be  so 
exceedingly  reduced  in  quantity,  and  a  given  portion  of 
money,  consequently,  to  become  so  valuable,  that  the  coins, 
which  are  requisite  for  purchasing  the  articles  most  frequently 
needed,  would  be  inconveniently  small.  But  those  coins  might 
also  be  inconveniently  large,  if  the  circulating  medium  be 
exceedingly  augmented  in  quantity.  And  it  must  be  obvious 
that,  between  these  two  extreme  limits,  there  is  a  vast  range, 
in  which  the  quantity  or  amount  of  the  circulation  must  be  a 
matter  of  the  greatest  indifference. 

To  avoid  being  misunderstood,  I  wish  my  readers  to  note 
particularly  that  v^^hat  has  just  been  stated  has  had  no  refer- 
ence to  the  inconveniences  and  losses  necessarily  experienced 
by  creditors  whenever  the  circulating  medium  is  undergoing 
the  process  of  being  augmented  or  expanded,  or  to  those  far 
greater  inconveniences  and  losses  to  which  debtors  are  sub- 
jected on  the  occurrence  of  every  diminution  or  contraction 
of  that  medium.  These  "  evils  of  change"  can  only  be 
obviated  by  rendering  the  change  in  every  case  as  gradual 
as  possible.  We  may  conceive  it  to  take  place,  however 
great  it  may  be,  so  very  gradually  as  to  be  scarcely  percep- 
tible in  its  effects,  even  by  the  parties  most  interested.  And 
the  ultimate  results  are,  at  all  events,  such  as  I  have  described 
them  to  be. 

The  temporary  evils  of  which  mention  has  been  made,  it 
may  be  proper  to  say  here,  will  be  considered  in  some  detail, 
when  I  shall  treat  of  the  immediate  effects  resulting  from  the 


152  THE   FSINCIPLES   OF 

expansions  and  contractions  of  the  paper  money  issued  by  the 
banks. 

Now  if  all  bank  notes  were  to  cease  to  circulate,  and  no 
other  description  of  paper  money  were  to  be  issued  by  the 
government,  or  from  any  other  source,  to  supply  their  place, 
— although  the  quantity  of  specie,  as  well  as  the  mercantile 
paper  and  other  contrivances  actually  existing  in  the  country, 
for  economising  the  use  of  money,  would  be  amply  suffi- 
cient for  performing  all  the  functions  of  circulation, — there 
can  be  no  doubt  of  every  contrivance  to  supply  the  place  of 
money  being  made  use  of  to  a  greater  extent  than  heretofore. 
While  for  example,  a  bill  of  exchange  may  be  refused,  in 
payment  for  commodities  purchased  from  an  individual  who  is 
indebted  at  the  very  place  on  which  the  bill  in  question  is 
drawn,  and  refused  because  of  his  preferring  to  remit  the 
amount  of  his  debt  in  bank  notes, — the  bill  of  exchange,  if 
obtainable  at  a  premium  less  than  the  expense  of  transporting 
specie,  may  have  a  preference  given  to  it  when  bank  notes 
no  longer  circulate.  Other  examples,  too,  will  occur  to  the 
reader,  of  ordinary  mercantile  paper  then  finding  employment 
as  money,  in  the  room  of  bank  notes. 

But  such  an  addition  as  this  to  the  circulation  is  of  little 
comparative  importance  in  respect  to  my  present  purpose. 
Even  if  it  were  not  to  occur,  it  will  follow,  on  the  principles 
already  explained,  that  the  diminution  which  has  taken  place 
of  the  money  of  the  country,  by  means  of  the  withdrawal  of 
all  bank  paper,  will  be  distributed,  so  to  speak,  throughout  the 
whole  commercial  world.  Hence  it  is  easy  to  conceive  that 
the  actual  diminution  of  the  money  which  circulates,  after 
this  distribution  shall  have  been  accomphshed, — and  it  will 
evidently  not  be  slow  in  being  accomplished, — will  be  consi- 
derably less  than  it  was  at  first.  If  the  circulating  medium 
of  the  United  States  be  supposed  to  constitute  a  tenth  part  of 
that  of  the  whole  world,  and  if  we,  besides,  suppose  as  much 


POLITICAL  £CONOXr.  153 

as  fifty  millions  of  dollars  to  be  withdrawn  from  the  circu- 
lation, the  amount,  by  which  the  circulating  medium  of  our 
country  will  have  been  diminished,  will  be  only  five  millions 
of  dollars. 

This,  again,  is  not  the  ultimate  or  permanent  condition  of 
the  circulating  medium.  On  account  of  its  general  diminu- 
tion, prices  every  where  will  have  fallen,  or  the  exchangeable 
value  of  money  will  have  risen.  A  more  active  production  of 
the  precious  metals,  consequently,  will  ensue,  until  prices 
return  very  nearly  to  their  former  rates,  and  the  circulating 
medium  very  nearly  to  its  former  amount. 


CHAPTER  VII. 


THE   DIFFERENT  KINDS  OF  BANKS — HOW  THE  CREDIT  OF  BANKS  QY 
CIRCULATION  IS  MAINTAINED. 

There  are  three  sorts  of  banks,  viz.  banks  of  deposite,  of 
discount,  and  of  circulation.  Any  one  bank  may,  however, 
partake  of  the  character  of  all  of  these ;  as  is  the  case  univer- 
sally throughout  the  United  States. 

By  a  bank  of  deposite  is  meant  an  institution  which  receives 
the  money  of  individuals  on  deposite,  giving  them  credit  in  its 
books  for  the  money  deposited  ;  any  portion  of  which  may,  at 
any  time,  be  withdrawn  by  its  owner,  or  transferred  to  his 
creditor  without  being  withdrawn, — the  fact  of  such  transfer 
being  duly  noted  in  the  books  of  the  bank.  The  expense  of 
banking  may,  in  this  case,  be  met  by  exacting  a  small  per 
centage  on  the  making  or  the  withdrawing  of  any  deposite,  or 
on  the  transferring  of  it  from  one  individual  to  another. 


154  THE  PRINCIPLES  OP 

While  some  of  the  depositors  are  withdrawing  their  money, 
deposites  will  be  making  by  others ;  so  that,  notwithstanding 
the  liability  of  the  bankers  to  restore  upon  demand  the  money 
deposited  with  them,  they  will,  generally  speaking,  find  them- 
selves in  the  constant  possession  of  a  certain  sum,  which  they 
will  be  tempted  to  profit  from  by  lending  it  out  to  such 
persons  as  may  be  desirous  of  borrowing.  One  of  the  most 
convenient  modes  of  doing  this  is  by  the  discounting  of  pro- 
missory notes ;  and  hence  the  origin  of  banks  of  discount. 
Such  discounts,  however,  may  be  made,  not  only  with  the 
money  of  depositors,  but  with  that  of  individual  bankers,  or 
companies  of  bankers,  with  a  view  to  the  profits  to  be 
derived  from  their  respective  capitals,  as  in  any  other  employ- 
ment. 

But  a  bank,  instead  of  parting  with  its  specie  in  exchange 
for  the  promissory  notes  of  individuals  discounted  by  it,  may 
issue  promissory  notes  of  its  own,  which  are  made  payable  to 
the  bearer  in  specie  on  demand,  and  which  are  capable,  on 
account  of  their  great  convenience,  as  well  as  the  credit 
attached  to  them  by  the  public  generally,  of  performing  all 
the  functions  of  money ;  the  bank  becoming,  in  this  manner, 
a  bank  of  circulation. 

Here  I  may  remark  that,  when  I  speak  of  the  hanking 
system  of  the  country,  I  look  upon  the  furnishing  of  a  paper 
circulation,  as  a  substitute  for  specie,  as  constituting  its  essen- 
tial feature. 

It  is  evident  that  no  inducement  would  be  offered  to  a  bank 
for  issuing  its  own  paper,  had  it  not  the  power  to  issue  it  to  a 
greater  amount  than  it  could  do  of  specie ;  and  the  excess  of 
the  amount  of  paper  money  issued  above  that  which  could  be 
issued  of  specie  must  be  sufficiently  great  to  enable  the 
bankers  to  pay  the  augmented  expenses  of  management. 
From  the  very  nature,  then,  of  such  a  bank  as  I  am  now 
speaking  of,  it  will  put  more  of  its  paper  in  circulation  than 
it  has  specie  in  its  vaults  to  redeem  it.    It  promises  every  day 


POLITICAL    ECONOMY.  155 

to  do  what  it  knows,  and  what  every  one  at  all  acquainted 
with  the  nature  of  banking  knows,  would  be  impracticable  for 
it  to  do,  if  all  its  notes  were  to  be  presented  for  payment.  In 
this  event,  nothing  would  be  left  for  it  but  to  suspend  its 
business.  And  the  question  naturally  presents  itself: — Why 
is  it  that  the  credit  of  a  bank  is  such  that,  notwithstanding 
what  has  been  said,  the  holders  of  its  notes  ordinarily  shew  no 
anxiety  to  exchange  them  for  specie,  and  that  no  run  for 
specie,  in  consequence,  is  made  upon  the  bank  ? 

Before  answering  the  question  which  has  been  put,  and  in 
order  to  simplify  as  much  as  possible  my  present  subject,  I 
may  observe  that,  whatever  may  be  the  capital  of  bankers,  it 
is  only  the  portion  of  it  consisting  of  specie  held  in  readiness 
for  the  purpose  of  redeeming  their  notes,  together  with  the 
advances  necessary  in  other  respects  for  carrying  on  banking 
operations,  which  in  reality  constitute  the  capital  employed 
in  banking.      All  the  capital  which  the  bankers  may  other- 
wise possess  is  invested  similarly  to  that  of  other  capitalists 
who   are   engaged  in  the  various   branches  of  production. 
Moreover,  it  may  be  here  mentioned  that  I  shall,  as  I  proceed, 
use  language  implying  that  the  business  of  banking  is  con- 
ducted  altogether  by  means  of  the  capital  owned  by  the 
bankers,  without  the  aid  of  any  deposites  made  by  individu- 
als, and  liable  to  be  at  any  time  withdrawn  by  them.      My 
doing  so  cannot  possibly  lead  to  any  practical  errour  in  my 
conclusions,   because   the   possession   of  a  certain   average 
amount  of  deposites  is  equivalent  simply  to  so  much  money 
borrowed  by  the  bankers ;  which  money  they  have  it  in  their 
power  to  dispose  of  just  as  they  have   it   in   their  power 
to   dispose   of   every  portion  of  the  capital  of  which  they 
are   the   owners.      The   nature  of  the  effects  produced,  on 
the  circulating  medium,  must  necessarily  be  the  same  in  the 
one  of  these  cases  as  in  the  other. 

The  reason  why  the  notes  of  a  bank  may  maintain  their 
full  credit,  in  despite  of  the  fact  that  the  whole  value  of  those 


156  THE  PRiNCIPiES  OF 

notes  in  circulation  is  greater  than  the  amount  of  specie  in  the 
possession^of  the  bank,  will  be  quite  obvious,  if  we  look  for  a 
moment  at  the  credit,  as  well  as  the  debtor  side  of  its  affairs. 
And  to  give  precision  to  our  ideas,  let  us  suppose  a  particular 
case.  Let  a  bank  be  established, — say  in  the  city  of  Phila- 
delphia,— with  a  capital  in  specie  of  $100,000.  If  this  bank 
issue  its  notes  to  the  amount  of  SI.'jO,©©©,  it  will  be  indebted 
to  the  public  in  an  equal  amount ;  and  to  pay  its  debts,  it 
holds,  in  addition  to  the  specie  in  its  vaults,  the  promissory 
notes  of  individuals  to  an  amount  somewhat  greater  than 
that  of  its  own  notes, — greater,  that  is,  by  the  discount  upon 
the  former.  The  payment,  too,  of  the  promissory  notes  which 
have  been  discounted  by  the  bank  is  vouched  for,  not  merely 
by  the  promissors,  but  by  endorsers,  whose  ability  to  pay 
them,  if  required  to  do  so,  has  been  pronounced  upon  by  a 
competent  board  of  directors,  previously  to  their  having  been 
discounted.  And  again,  the  loans  made  to  individuals,  on  the 
security  of  their  notes  so  endorsed,  were  made  for  a  short 
period  of  time  only, — generally  speaking,  for  sixty,  or  at  most 
ninety  days.  Were  those  loans,  in  every  instance,  made  even 
for  the  longer  of  the  terms  just  mentioned,  and  if  we  assume 
as  much  to  be  loaned  in  one  day  as  in  another,  the  bank 
would  have  it  in  its  power  to  call  in  one-ninetieth  of  its  notes 
in  circulation,  or  to  receive  in  specie  one-ninetieth  of  their 
value,  every  successive  day,  and  thus  to  provide  itself  very 
speedily  with  the  means  of  meeting  its  engagements.  Besides 
all  this,  should  the  bank  be  possessed  of  any  property  or  capi- 
tal, in  addition  to  its  proper  banking  capital,  such  property 
will  afford  additional  means  of  security  to  its  creditors.  It  is, 
then,  not  at  all  surprising,  that  the  notes  of  a  bank,  when  it  is 
managed  with  a  certain  degree  of  prudence,  should  maintain 
their  full  credit,  and  should  be  regarded  as  in  fact  equiva- 
lent to  the  specie  which  they  profess  to  represent. 

It  is  very  obvious  that  if,  while  a  bank  retains  in  its  vaults 
the  same  amount  of  specie,  it  extends  its  circulation  more  and 


POLITICAL  ECOXOMT.  157 

more,  its  condition  will  be  continually  becoming  less  secure ; 
until,  at  length,  the  specie  which  it  possesses  may  not  be 
regarded  by  the  public  as  sufficient  to  cover  the  risk  of  the 
non-payment  of  the  promissory  notes  of  individuals  held  by 
the  bank.  The  notes  of  the  bank  will  then  depreciate  in 
general  estimation,  and  a  run  upon  it  for  payment  of  them 
may  ensue.  An  alarm  or  panic  may  indeed  be  produced  to 
so  great  an  extent,  by  the  supposed  inability  of  the  bank  to 
meet  its  engagements  in  a  short  period  of  time,  or  at  all,  as  to 
oblige  it  to  stop  payment,  and  to  wind  up  its  affairs  in  the  best 
manner  it  can. 


CHAPTER  VIII. 


TErfDENCY  OF  BANK  \OTES   TO    EXPEL  SPECIE  FROM  THE  CIRCULA- 

TlOrf MANNER    IN    WmCH    THE    NOTES    ISSUED    BY    ONE    BANK 

CHECK  THE  ISSUES  OF  ANOTHER. 

A  LOSS  of  credit  is  not  the  only  reason  why  the  specie  of  a 
bank  may  be  drawn  from  it,  in  exchange  for  its  notes,  with 
more  or  less  rapidity.  This  will  also  take  place  whenever 
any  extraordinary  demand  shall  arise  for  specie, — say  for 
specie  to  be  exported ;  and  one  cause  of  such  a  demand 
arising  may  be  a  previous  unusual  enlargement  of  the  circu- 
lation of  the  bank. 

After  what  has  been  already  delivered  on  the  effects  pro- 
duced upon  prices,  and  on  the  distribution  of  the  money  of 
the  world,  by  an  emission  of  paper  money,  the  proposition 
which  has  just  been  stated  can  scarcely  require  any  farther 
proof.  An  illustration  of  the  changes  resulting  in  the  case 
will,  nevertheless,  be  given,  with  a  view  to  make  them 
thoroughly  famiUar  to  my  readers. 

21 


158  THE  PRINCIPLES  OF 

Take  the  instance,  already  considered,  of  a  bank  estab- 
lished in  the  city  of  Philadelphia,  with  a  specie  capital  of 
$100,000,  and  which  has  put  forth  its  notes  to  the  amount  of 
$150,000.     Now  let  it  be  supposed  that  prices,  and  therefore 
the  value  of  money,  have  become  every  where  equalised,  in 
the  sense  in  which  I  use  this  expression, — so  that  there  is  no 
demand  in  the  community  for  specie  to  be  exported  abroad. 
I  shall  suppose  the  notes  of  the  bank  to  be  then  issued  more 
abundantly  than  before.     Let  it  issue  $200,000,  instead  of 
$150,000.     There  will,  of  course,  be  a  local  rise  of  prices; 
which  will  be  followed  by  an  exportation  of  money,  and  an 
importation  of  other  commodities,  until  prices  decline  to  their 
former  level.     The  specie  exported  may  not  be  wholly  taken 
from  what  is  actually  circulating ;  it  may  be  drawn  in  part 
from  the  bank,  in  exchange  for  its  own  paper,  or  by  depositors. 
To  the  extent  in  w^hich  this  is  done,  the  circulation  of  the  bank 
will,  plainly,  not  be  as  great  as  it  would  otherwise  be.     On 
account,  however,  of  the  greater  convenience,  other  circum- 
stances being  the  same,  of  bank  notes  than  specie,  it  will  be 
easy  for  the  bank  to  procure  specie  for  them.    So  long,  indeed, 
as  more  specie  is  in  circulation  than  what  is  required  for  pay- 
ments of  a  smaller  amount  than  that  of  the  smallest  bank 
notes,  and  so  long  as  the  bank  shall  be  willing  to  increase  its 
issues,  will  it  be  brought  to  the  bank,  sooner  or  later,  by  the 
holders  of  it,  in  any  quantity,  and  bank  notes  drawn  for  it  in 
return.    The  bank  of  which  I  am  speaking  can,  consequently, 
if   it  chooses,   always  retain  its   original  specie  capital    of 
$100,000,  while  it  is  extending  its  circulation  more  and  more, 
and  while,  by  doing  so,  it  is  causing  the  expulsion  of  the  specie 
circulating  within  the  sphere  of  its  operations.     And  it  will  be 
readily  perceived  that,  if  we  abstract  from  any  possible  loss 
of  credit  it  may  incur  by  so  large  an  issue  of  its  notes,  we  may 
suppose  it  to  go  on  issuing  them,  until  the  whole  of  the  specie 
originally  circulating  shall  have  been  sent  abroad, — excepting 
only  what  is  needed  for  payments  which,  on   account  of 


POLITICAL  ECONOMY.  159 

their  comparatively  small  value,  cannot  be  made  with  bank 
notes. 

The  conclusion  which  has  just  been  deduced  in  reference 
to  a  bank  in  Philadelphia,  I  need  not  say  is  equally  true  in 
reference  to  one  established  any  where  else,  for  instance  in 
New  York ;  and  it  may  be  added  that  in  every  country 
where  a  sufficient  capital  is  invested  in  banking  to  enable  the 
banks  to  issue  their  paper  without  fear  of  a  loss  of  credit  on 
their  part,  and  without  the  fear,  on  this  account,  of  a  run  for 
specie  upon  them,  the  actual  tendency  of  things  will  be  to  an 
entire  substitution  of  paper  money  in  place  of  a  metallic 
currency,  with  the  sole  exception  above  mentioned.  This  is 
the  case  in  our  own  country,  as  every  one  knows. 

After  having  expelled  the  specie  from  circulation,  and 
produced  a  state  of  thing  in  which  the  specie  that  may  be 
farther  required  for  exportation  can  only  be  obtained  from  the 
banks, — should  they  continue  to  extend  their  issues  of  paper, 
their  stock  of  specie  will  be  more  or  less  rapidly  reduced ; 
and  as  the  profits  or  dividends  of  the  banks  "will  be  greater 
according  as  they  issue  a  greater  amount  of  paper,  they  will, 
in  consequence,  push  their  issues  to  the  limits  of  safety, — 
safety,  not  only  from  their  paper  becoming  in  any  degree 
discredited,  but  fikewise  from  that  of  having  a  sudden  and 
extraordinary  demand  made  upon  them  for  specie,  which 
they  may  not  have  the  means  of  meeting.  Now,  still  ab- 
stracting from  all  consideration  of  the  former  risk,  the  inquiry 
occurs,  how  the  proper  degree  of  safety  in  respect  to  the 
latter  is  to  be  ascertained.  Here  nothing  more  can  be 
said  than  that  experience  must  be  our  guide, — a  wide  expe- 
rience however,  and  not  one  acquired  in  one  set  of  circum- 
stances only.  A  stock  of  specie  which  might,  with  propriety, 
be  regarded  as  amply  sufficient  in,  so  to  speak,  a  quiescent 
state  of  things,  when  the  affairs  of  the  commercial  world 
have  been  going  on,  and  are  likely  to  go  on,  for  a  conside- 
rable period  with  great  uniformity,  would,  on  the  other  hand, 


160  TUE  PRINCIPLES   OF 

very  possibly  be  pronounced  by  competent  judges  to  be  entirely 
too  small,  for  the  purpose  intended,  at  a  time  when  the 
relations  of  commerce,  and  therefore  the  demand  for  money, 
were  liable  to  frequent  and  considerable  alteration. 

If  the  directors  of  all  the  banks  in  the  country  were  to 
form  the  same  estimate  precisely  of  the  diflerent  risks  to 
be  guarded  against  in  the  management  of  their  affairs,  and 
to  be  equally  prudent, — and  if,  moreover,  the  banking 
capital  of  the  country  was  every  where  distributed  according 
to  the  relative  business  wants  of  the  community, — the  reader 
will  not  fail  to  perceive  that  the  proportion  in  any  one  bank 
of  its  circulation  to  the  specie  it  has  in  its  possession  would 
be  the  same  as  in  every  other.  In  this  state  of  things,  let  some 
one  bank,  violating  the  dictates  of  prudence  for  the  sake  of 
greater  gain,  or,  it  may  be,  simply  through  ignorance  of 
the  principles  of  banking,  attempt  to  enlarge  its  circulation 
beyond  the  usual  proportion.  What  consequences  will 
follow  1  In  the  first  place,  as  in  the  case  of  every  augmen- 
tation of  the  circulating  medium,  however  brought  about, 
this  medium  will  be  depreciated  in  value ;  that  is,  the  prices 
of  things  will  rise.  Commodities,  other  than  money,  will  bp 
transported  to  the  place  where  all  this  has  occurred  from 
other  places,  and  especially  from  such  as  are  in  the  vicinity, 
on  account  of  the  comparatively  small  cost  of  transporta.- 
tion ; — and  those  commodities  will  be  paid  for  in  money, 
the  motive  having  been  diminished  for  exporting  every- 
thing else.  While  the  money  going  to  remote  places  will 
consist,  for  the  most  part,  of  specie,  the  sphere  in  which 
the  notes  of  our  bank  chiefly  circulate  will,  nevertheless,  be 
extended.  Bank  notes  will,  within  a  certain  distance,  be 
preferred  to  specie.  And  Philadelphia  notes,  when  unduly 
increased  in  amount,  may  thus,  for  example,  as  it  were 
invade  the  province  of  New  York  notes,  and  interfere 
with  them,  provided  these  have  not  been  increased  propor- 
tionally. 


POLITICAL    ECONOMY.  Id 

But  the  effect  described  can  never  be  otherwise  than 
temporary.  The  very  fact  of  Philadelphia  bank  notes  circu- 
lating where  they  did  not  before,  or  circulating  in  greater 
quantity,  and  to  a  greater  value,  than  before,  will  tend  to 
produce  a  suspicion  that  they  have  been  issued  unduly  and 
imprudently.  This  feeling,  again,  will  be  apt  to  check  their 
free  circulation,  and  to  cause  their  value  to  fall  below  ^ar. 
They  will  then  find  their  way  gradually  back  to  the  source 
whence  they  originated,  to  be  exchanged  for  specie ;  and 
the  expanded  circulation  will  be  contracted  eventually  to  its 
former  limits. 

This  process  may  be  very  much  expedited  by  the  action  of 
the  banks  which  have  been  interfered  w  ith.  Those  of  the  city 
of  New  York,  on  receiving  in  payment  of  the  promissory 
notes  discounted  by  them,  or  in  deposite,  an  unusual  amount 
of  Philadelphia  bank  notes,  can  easily  send  these  to  the  latter 
city,  and  draw  specie  from  the  banks  there  in  return  for 
them ;  or  the  New  York  banks,  if  they  think  proper,  might 
discredit  them  to  a  certain  extent,  and  in  a  certain  region, 
by  consenting  to  receive  them  only  below  their  nominal  or 
par  value,  or  by  refusing  to  receive  them  at  all. 

After  w^hat  has  been  said,  the  reader  will  understand  dis- 
tinctly how  one  bank  of  a  country  may  be  a  check  upon 
another,  and  how  each  bank  may  be  obliged  to  confine  its 
operations  within  what  may  be  called  its  proper  sphere. 

I  may  add  that  the  above  remarks  will  apply  to  the  manner 
in  which  the  several  banks  established  in  the  same  place  have 
it  in  their  power  to  check  each  other's  over-issues  of  paper 
money.  They  will,  at  least,  apply  with  such  sHght  modifica- 
tions as  will  very  readily  occur  to  my  readers. 


1G2  THE  PRINCIPLES  OF 


CHAPTER  IX. 

IMPOSSIBILITY  OF  PERMANENTLY  EXPANDING  THE  CIRCULATING 
MEDIUM  OF  A  COUNTRY  BEYOND  THE  AMOUNT  WHICH  IS 
DETERMINED  BY  THE  COST  OF  PRODUCING  THE  PRECIOUS 
METALS. 

The  check  mutually  afforded  by  the  banks  of  a  country  to 
an  over-issue  by  them  of  paper  money  may,  it  is  evident,  be 
entirely  removed  by  a  combination  of  them  for  this  purpose. 
If  two  or  more  banks  combine  together,  they  will  be  enabled 
to  act  with  a  comparatively  greater  efficiency  upon  the  cur- 
rency, for  good,  by  checking  the  issues  of  other  banks,  or  for 
evil,  by  unduly  extending  their  own  issues  of  paper  money. 
Their  united  efficiency  too,  in  these  respects,  will  not  differ 
from  that  of  a  single  bank  with  a  capital  equal  to  the  capitals 
taken  together  of  all  the  combined  banks. 

We  must  be  careful,  however,  not  to  form  an  exaggerated 
estimate  of  the  power  which  a  bank  with  a  large  capital,  or  a 
combination  of  a  numoer  of  banks,  can  exert  over  the  currency 
of  a  country.  On  account  of  the  checks  to  the  over-issuing 
of  paper  money  still  administered  by  the  independent  banks, 
as  well  as  by  the  state  of  the  money  market  abroad,  it  will  be 
impossible,  excepting  for  a  very  short  period  of  time,  to 
expand  the  circulation  of  any  place,  or  district  of  country, 
beyond  its  usual  proportion  of  the  circulation  of  the  whole 
commercial  world. 

This  proportion,  it  will  be  recollected,  I  before  shewed  to 
be  necessarily  of  such  an  amount,  on  the  average,  as  would 
consist  with  a  scale  of  prices  that  would  repay  the  cost  of 
producing  the  precious  metals.  And  the  advantages,  or  dis- 
advantages, of  any  one  mode  of  regulating  the  currency  over 


POLITICAL  ECONOMY.  163 

another,  all  resolve  themselves  into  the  comparative  extent 
and  frequency  of  the  deviations  from  perfect  uniformity,  in 
the  value  of  a  given  portion  of  it,  which  may  be  temporarily 
occasioned. 

A  proposition  which  is  intimately  related  to  what  has  just 
been  deHvered  is,  that  when  the  banking  capital  of  a  country, 
"properly  so  called,  whether  there  be  few  banks  or  many,  is 
extended  beyond  a  certain  amount,  it  will  be  impossible  to 
circulate,  on  the  average,  any  more  bank  notes  than  before. 
An  example  will  make  my  meaning  perfectly  clear.  Suppose 
the  circulation  of  all  the  banks  to  have  reached  the  hmits  of 
safety ;  the  whole  circulating  medium  being  supposed  at  the 
same  time  to  consist  exclusively  of  paper  money,  with  the 
exception  of  the  metallic  money  wanted  for  purchases  of  a 
small  value.  Now  let  a  new  bank  be  established ;  and  let  us 
trace  the  consequences  of  this  institution  entering  the  field  of 
competition  with  those  of  like  nature  already  in  existence, — 
consequences,  I  may  observe,  which  are  precisely  such  as 
would  result  from  an  augmentation  to  an  equal  amount  of  the 
capital  of  the  latter.  Also,  let  the  new  bank  commence 
business  by  discounting  the  promissory  notes  of  individuals,  so 
as  to  put  into  circulation  its  own  notes  to  the  amount  of 
$100,000.  It  is  manifest,  from  the  principles  already 
explained,  that  the  expansion  of  the  currency,  thus  produced, 
must  soon  be  followed  by  a  corresponding  contraction  of  it ; 
which  contraction  all  the  banks  in  the  same  place  or  region 
will  be  equally  obliged  to  make.  The  new  bank  will  then 
have  obtained  a  share  of  the  paper  circulation  at  the  expense^ 
and  only  at  the  expense,  of  that  of  the  others.  Every 
$100,000  of  its  paper  which  it  may  issue  will,  of  course,  be 
followed  by  similar  effects.  And  eventually,  it  will  be  able 
to  maintain  a  circulation  bearing  the  same  proportion  to  its 
specie  capital  as  that  which  every  other  bank  bears  to  its 
specie  capital.  But  our  supposition  has  been  that  this  capital 
is  augmented  without  the  specie,  on  the  basis  of  which  the 


164  THE  PRINCIPLES  OF 

additional  bank  conducts  its  operations,  having  been  taken 
from  the  other  banks.  The  inference  is  obvious,  that  the 
proportion  in  every  hank  of  specie  to  the  paper  it  has  put 
forth  will  have  become  greater  than  before ;  and  it  is  equally 
obvious  that  a  like  inference  vi^ill  hold  good,  whatever  may  be 
the  number  of  additional  banks  established,  and  whatever  may 
be  the  additions  successively  made  to  the  capitals  of  the  banks 
previously  existing. 

But  in  the  struggle  of  the  different  banks  to  extend  their 
circulations  as  much  as  possible,  and  notwithstanding  the 
checks  which  they  apply  to  each  other's  issues,  a  tendency  to 
a  general  extension  of  these  will  be  found,  under  ordinary 
circumstances,  to  take  place.  The  specie  of  the  banks, 
while  this  extension  is  going  on,  will  be  drawn  from  them  to 
be  exported  abroad,  until  their  stock  of  it  is  reduced  to  the 
limits  of  safety.  So  long,  now,  as  the  same  average  degree 
of  safety  shall  continue  to  be  aimed  at,  it  will  be  plainly  out 
of  the  question  for  them  to  extend  their  circulation  any 
farther.  And  again,  the  reduction  of  the  specie  of  the  banks, 
in  the  manner  which  has  just  been  described,  is  equivalent  to  a 
reduction  of  what  is,  properly  speaking,  the  capital  employed 
in  the  business  of  banking.  Hence  we  may  conclude,  not 
only  that  the  share  of  the  circulation  of  a  country  obtained 
by  any  new  bank  (when  the  circulating  medium  consists 
already  of  paper,  excepting  alone  what  is  required  for  small 
change)  is  obtained  at  the  expense  of  a  diminution  to  an 
equal  extent  of  the  circulation  of  all  the  other  banks, — but 
also  that  the  proper  banking  capital  is  at  the  same  time,  and 
under  similar  circumstances,  unsusceptible  of  being  increased. 
An  indefinite  amount  of  banking  capital  nominally  so  called 
may,  it  is  true,  still  be  conceived  to  be  created,  but  which 
must,  in  reality,  be  employed  otherwise  than  in  banking.  And 
because  it  must  necessarily  be  so  employed,  I  may  remark 
that  no  disadvantage  (the  reader  will  bear  in  mind  that  I  am 
now  concerned  with  ultimate  effects)  will  accrue  to  the  com- 


POLITICAL  ECONOMY.  165 

munity  simply  on  account  of  its  increase,  no  matter  how 
great  this  increase  may  be.  On  the  contrary,  it  will  furnish 
an  additional  fund  for  insuring  payment  by  the  banks  to  their 
creditors  on  any  emergency. 

In  the  exposition  which  has  been  made  of  the  theory  of 
banking,  I  have  supposed  the  notes  of  a  bank  to  enter  into 
the  circulation  by  means  of  the  discounting  of  the  promissory 
notes  of  individuals.  This  may,  however,  manifestly  occur 
in  more  ways  than  one ;  in  as  many  ways,  indeed,  as  there 
are  modes  of  lending  money,  or  of  doing  what  is  equivalent  to 
the  lending  of  money ;  as,  for  example,  the  purchase,  on  the 
one  hand,  by  the  banks  of  bills  of  exchange,  and  the  sale  by 
them  to  individuals,  on  the  other,  of  their  drafts  upon  each 
other, — a  two-fold  business  in  which  the  banks  of  the  United 
States  have  latterly  engaged  to  a  considerable  extent.  But 
on  whatever  occasion,  or  in  whatever  manner,  bank  notes  are 
issued,  the  reader  cannot  fail  to  perceive,  on  a  moment's 
reflection,  that  the  results  which  have  been  deduced,  in  this 
and  the  two  preceding  chapters,  will  always  be  the  same. 

That  after  a  certain  amount  of  capital  has  been,  strictly 
speaking,  invested  in  banking,  no  more  can  be  so  invested, — 
that  no  new  bank  can  then  transact  any  business,  excepting  at 
the  expense  of  the  business  of  the  banks  previously  existing, — 
and  that  it  is  absolutely  impossible  for  the  banks  of  a  country, 
under  any  circumstances,  to  go  on  continually  augmenting 
the  circulating  medium,  and  consequently  raising  the  prices 
of  things, — are  propositions  of  the  utmost  importance  in  the 
theory  of  banking.  They  have,  nevertheless,  been  exten- 
sively called  in  question  by  a  class  of  reasoners  who  are  ever 
confounding  ultimate  with  temporary  effects.  It  is  to  ultimate 
effects  alone  that  these  propositions  have  reference.  And  the 
reader,  if  he  will  recollect  this,  will  nowhere  meet  with  either 
fact,  or  argument,  to  shake  his  confidence  in  their  truth. 

Were  the  ultimate  effects  the  only  ones  produced  by  an 
alteration  in  the  value  of  money,  or,  which  is  the  same  thing, 

22 


166  THE  PRINCIPLKS  OF 

were  those  effects  at  once  produced,  without  the  intervention 
of  other  and  temporary  changes,  the  advantages  of  banks  of 
circulation  would  scarcely  be  detracted  from  by  any  counter- 
balancing disadvantages  to  which  they  would  still  be  hable. 
What  those  advantages  are,  I  shall  proceed  to  state  in  the 
following  chapter. 

The  disadvantageous  action  of  the  banks  on  the  commu- 
nity will  be  pointed  out  when  I  shall  exhibit  the  nature, 
extent,  and  frequency  of  the  temporary  changes  above 
adverted  to. 


CHAPTER  X. 


THE  ADVANTAGES,  REAL  OR    SUPPOSED,  Or  A  BANK  NOTE    CIRCULA- 
TION. 

The  great  advantage  of  a  bank  note  circulation  is,  that  a 
country  is  enabled,  by  means  of  it,  to  dispense  with  the  use  of 
the  precious  metals  to  an  amount  equal,  or  (on  account  of  the 
quicker  circulation,  generally  speaking,  of  bank  notes)  to  an 
amount  more  than  equal  to  the  excess  of  the  whole  value  of 
the  notes  issued  over  that  of  the  specie  retained  in  the  vaults 
of  the  banks, — the  specie,  besides,  thus  rendered  unnecessary, 
not  being  parted  with  gratuitously.  My  readers  will  recollect 
that,  when  paper  money  is  introduced,  there  will  be  a  dimin- 
ished production  of  gold  arid  silver,  until  the  circulating 
medium  again  finds  its  proper  level.  And  this  impHes  an 
augmented  production  of  other  commodities,  which  will  be 
an  addition  to  the  wealth  of  the  community. 

Whether  the  specie  previously  circulating  was,  or  was 
not,  procured  from  sources  existing  in  the  country  itself,  will 
make  no  difference  here.    If  the  former  be  the  case,  it  is  easy 


POLITICAL  ECONOMir.  167 

to  understand  how  a  diminished  production  of  the  precious 
metals  will  be  followed  by  an  augmented  production  of  every 
thing  else.  But  if  those  metals  be  procured  from  foreign 
mines,  they  could  in  fact  only  be  procured  in  exchange  for 
the  products  of  the  country  ;  and,  like  all  other  imports  into 
it,  they  may  be  themselves,  therefore,  truly  considered  as  the 
products  of  its  capital  and  labour.  It  is  manifest  that  the 
commodities  which  were  before  exchanged  for  the  gold  and 
silver,  which  are  no  longer  required,  are  so  much  clear  gain ; 
— not  the  less  so,  too,  when  the  labour  applied  to  their  produc- 
tion is  transferred  to  the  producing  of  such  other  commodities 
as  may  perhaps  be  in  greater  demand. 

A  country  may  derive  the  benefit,  just  described,  from  the 
substitution  of  a  paper  currency  for  a  hard  money  circula- 
tion,— at  least  to  a  very  considerable  extent, — without  waiting 
for  the  transfers  of  capital  and  labour  to  take  place ;  provided 
it  be  the  only  country  in  which  a  currency  of  the  kind  is 
introduced.  For  then  the  paper  money,  as  it  enters  into  the 
circulation,  will  cause  the  money  previously  circulating  to  be 
exported  in  payment  for  such  commodities  as  may  be  in  most 
demand,  until  no  more  than  its  due  share  of  the  augmented 
circulating  medium  of  the  world  will  be  retained  in  the  coun- 
try. That  the  commodities  imported  are  to  be  considered  as 
a  national  gain,  follows  necessarily  from  the  fact  of  the  circu- 
lating medium,  notwithstanding  a  portion  of  it  has  been  sent 
abroad,  being  still  adequate  to  the  performance  of  all  the 
exchanges  required,  and  quite  as  much  so  as  it  was  before 
this  exportation  occurred. 

In  proportion,  also,  to  the  degree  in  which  paper  money  is 
introduced  in  any  country  beyond  the  quantity  of  it  which 
circulates  in  others  generally,  will  the  immediate  benefit  be 
the  greater.  The  full  benefit  can  in  no  case  be  enjoyed  before 
the  amount  of  gold  and  silver  money  shall  be  reduced  to  the 
proper  point,  by  the  less  active  working  of  the  mines. 

When  this  process  shall  have  been  completed,  if  we  suppose 


1G8  THE    PRINCIPLES  OF 

jifty  millions  of  dollars  to  have  been  excluded  from  circulating 
in  the  United  States  by  the  issue  of  bank  paper,  the  country- 
will  thereby  have  acquired  an  amount  of  wealth  of  equal,  or 
nearly  equal  value.  This  addition  to  its  wealth  is,  however, 
made  once  for  all.  From  the  nature  of  things,  it  can  never  be 
renewed.  It  is,  therefore,  equivalent  to  a  gain  of  the  annual 
profits  upon  a  capital  of  fifty  millions ;  and  assuming  the  ordi- 
nary rate  of  profits  to  be  ten  per  cent., — an  assumption  higher 
than  the  facts  will  justify, — it  will  amount  to  the  sum  of  only 
five  millions  of  dollars  per  annum,  or  to  about  half  a  dollar  for 
every  white  inhabitant  of  the  country. 

This  estimate  might  even  seem  to  be  an  exaggerated  one, 
when  the  reader  considers  that  the  whole  of  the  fifty  millions  in 
question  will  not  be  employed  as  capital.  Indeed,  we  have  no 
right  to  suppose  that  any  larger  proportion  of  it  will  be  em- 
ployed in  this  manner,  or  productively,  than  that  which  the 
whole  of  the  capital  of  the  country  bears  to  all  the  wealth  it 
possesses.  But  this  circumstance  is  here  of  no  moment.  The 
present  value  of  a  certain  portion  of  wealth  is  precisely  the 
same,  whether  it  is  destined  to  be  consumed  productively  or 
unproductively ;  and  consequently,  no  matter  in  what  propor- 
tions any  given  accession  to  the  national  wealth  may  be 
distributed  between  capital  and  what  is  not  capital,  it  must  be 
regarded  as  equivalent  to  an  accession  of  a  precisely  equal 
amount  to  the  former  alone. 

All  other  circumstances  being  the  same,  another  advantage, 
which  bank  notes  possess  over  specie,  is  their  greater  conve- 
nience to  be  kept  on  hand,  as  well  as  to  be  conveyed  or 
remitted  from  place  to  place.  This  convenience  is  the  greater, 
obviously,  where  the  sums  of  money  are  considerable ;  but 
that  it  exists  to  a  certain  degree  even  where  these  sums  are 
comparatively  small,  is  notorious  from  the  extent  in  which  the 
coin  of  the  country  is  excluded  from  the  circulation  by  the 
preference  every  Avhere  given  to  the  smallest  denominations  of 
notes  which  are  permitted  to  circulate.     For  making  remit- 


POLITICAL  ECONOMY.  169 

tances  indeed,  from  one  place  to  another,  we  are  not  reduced 
to  a  choice  between  bank  notes  and  specie.  Where  the  former 
cannot  be  procured,  recourse  may  be  had  to  bills  of  exchange. 
But,  in  general,  this  will  not  be  done,  as  the  reader  must  be 
aware,  so  long  as  the  notes  of  incorporated  and  wealthy 
banking  institutions  are  procurable  for  the  purpose. 

Besides  the  advantages  which  have  been  stated  to  flow  from 
the  use  of  bank  paper,  many  others  are  verj;:  commonly 
ascribed  to  it ;  and  banks  of  circulation  have  Vees,  not  unfre- 
quently,  represented  as  constituting  the  chief  source  whence  the 
rapid  advances  of  the  United  States  in  wealth  and  prosperity 
have  originated.  It  will  be  proper  to  examine  into  the  correct- 
ness of  these  opinions,  before  I  attempt  to  exhibit  the  disad- 
vantages to  the  community  of  which  our  banking  system  is 
productive. 

In  the  first  place,  bank  notes  are  said  to  be  a  cheaper 
circulating  medium  than  the  precious  metals.  Now,  if  this 
opinion  has  reference  to  the  first  cost  of  the  two  mediums,  its 
truth  might  be  conceded  without  dispute.  Not  so,  however, 
if  the  maintaining  of  them  in  their  existing  condition,  after 
they  have  been  once  procured  or  established,  is  the  meaning  of 
those  who  hold  the  opinion.  The  icear  of  a  specie  circulation 
is  quite  inconsiderable  in  amount  when  compared  with  the 
expenses  of  banking, — including  in  these  expenses  the  rents 
(employing  this  word  here  in  its  ordinary  acceptation)  paid 
for  buildings,  together  with  the  salaries  bestowed  upon  presi- 
dents, cashiers,  tellers,  and  clerks, — not  to  mention  a  multi- 
tude of  other  expenditures,  equally  necessary.  It  is,  perhaps, 
not  generally  known  that  the  wear  of  the  gold  or  silver  money 
which  circulates  is  as  small  as  it  really  is.  Mr.  Jacob,  in 
in  his  work  on  the  production  and  consumption  of  the  precious 
metals,  has  estimated  it  so  low  as  one  part  in  four  hundred 
and  twenty  annually, — that  is  something  less  than  $120,000 
out  of  fifty  millions. 

But  secondly,  a  notion,  very  prevalent  even  among  thinking 


170  THE  PRINCIPLES  OP 

men  who  have  not  examined  our  present  subject  on  scientific 
principles,  is,  that  banks,  by  the  issue  of  paper  money,  add  to 
the  capital  of  a  country.  Here  again,  as  in  the  instance  of 
the  opinion  just  before  considered,  there  is  a  sense  in  which 
what  is  maintained  will  be  assented  to  by  every  one  without 
hesitation.  The  substitution  of  paper  money  for  specie  will, 
as  has  been  frequently  repeated,  induce  an  extraordinary 
importation  of  commodities  other  than  money, — a  certain 
portion  of  which  commodities  cannot  fail  to  be  employed 
productively.  This  is,  however,  not  the  sense  in  which  the 
notion  I  am  considering  is  entertained  by  those  who  are  most 
forward  in  putting  it  forth  as  an  argument  in  favour  of  our 
existing  banking  system.  They  imagine  something  like  a 
direct  creation  of  capital  to  be  effected  by  the  instrumentality 
of  the  banks.  After  what  has  been  deUvered  concerning 
money  in  the  present  treatise,  my  readers  will  deem  such 
a  creation  of  capital  to  be  sufficiently  incomprehensible,  and 
inconsistent  with  the  principles  already  established.  Irre- 
spective of  the  additional  capital  derived  from  the  commodi- 
ties imported  in  exchange  for  the  specie,  which  has  been  dis- 
pensed with  in  the  manner  above  mentioned,  it  must  be 
evident  that  the  amount  of  the  capital  of  the  country  will 
have  remained  altogether  unaffected  by  the  circulation  of 
paper  money  in  the  place  of  specie. 

Again,  there  are  those  who  are  of  opinion  that,  by  extend- 
ing the  system  of  commercial  credit,  banks  (I  speak  of  banks 
of  circulation)  have  conferred  gi-eat  benefit  on  the  commu- 
nity ;  and  there  are  others  who,  absurdly  enough,  go  so  far  as 
to  suppose  that,  but  for  the  existence  of  such  institutions,  all 
credits  would  cease  to  be  given,  and  cash  would  have  to  be 
paid  in  the  making  of  every  purchase.  But  the  practice  of 
selHng  upon  credit,  or  of  lending  the  money  or  capital  of  one 
individual  to  another,  is  surely  in  no  respect  dependent  on  the 
issue  of  paper  money  by  the  banks.  Though  all  banks  of  cir- 
culation were  to  be  prohibited,  promissory  notes  could  con- 


POLITICAL    ECONOMY.  171 

tinue  to  be  discounted,  and  money  loaned  by  chartered 
institutions  or  by  private  individuals,  who  will  perform  all  the 
functions  of  banking,  with  the  exception  only  of  the  issuing  of 
their  own  paper  made  payable  on  demand.  Indeed,  from 
what  goes  before,  the  reader  will  understand  that,  should 
every  species  of  banking  cease  to  be  transacted,  money  would 
still  be  lent  by  the  possessors  of  it  for  the  purpose  of  enabling 
the  borrower  to  pay  the  debts  he  may  have  incurred,  or  to  be 
employed  by  him  productively.  And  there  is  no  reason  why 
a  less  amount  of  money  should  be  lent  than  when  the  banks 
were  the  principal  medium  for  lending  it.  Since  the  quantity 
of  money,  and  of  the  various  substitutes  for  money,  taken  as  a 
whole,  as  well  as  the  motives  for  desiring  to  borrow  it,  are 
the  same  in  the  one  case  as  in  the  other,  the  inducements  for 
lending  it  cannot  but  also  be  the  very  same  in  both. 

I  may  remark  that,  besides  the  obvious  inconveniences 
which  would  result  from  abolishing  the  practice,  in  every  case 
whatever,  of  lending,  the  advantage  of  the  credit  system 
resolves  itself  into  the  distribution  of  the  capital  of  the  country, 
as  far  it  is  practicable  in  the  circumstances  of  society  to  do 
so,  in  such  a  manner  as  to  be  most  productively  employed. 
Instead  of  directly  superintending  the  application  of  his  own 
means  of  production,  this  is  now  frequently  done  by  the 
capitalist  through  the  instrumentality  of  another  person  who 
can  apply  it  more  skilfully  than  himself,  and  who,  because  he 
can  make  a  skilful  application  of  it,  finds  it  advantageous  to 
borrow  capital,  and  to  pay  for  it  the  ordinary  profits  or  interest 
of  money.  But  whatever  portion  of  the  productive  power  of 
the  country  may,  agreeably  to  this  view  of  the  advantages  of 
credit,  be  attributed  to  it,  no  absurdity  is  surely  more  glaring 
than  that  of  holding  it  to  be  essentially  the  power  which  has 
filled  what  once  was  the  western  wilderness  in  the  United 
States  with  flourishing  towns,  and  which  has  constructed  our 
numerous  "  internal  improvements."  It  is  an  absurdity  more 
absurd  than  the  regarding  of  tlie  banks  as  so  many  genera- 


172  THE  PRINCIPLES  OP 

tors  of  capital,  by  means  of  the  simple  process  of  issuing  a 
certain  number  of  paper  promises  to  pay  specie  to  the  bearer 
on  demand.  The  absurdity  in  question  is  no  other  than  that 
of  robbing  the  capital  and  labour  of  the  country, — capital  and 
labour  that  would  at  all  events  have  been  employed  so  as  to 
yield  to  the  producers  the  ordinary  profits, — of  their  proper 
functions,  and  of  investing  with  them  the  imaginary  power  of 
credit. 


CHAPTER  XI. 

DISADVANTAGES  OF    THE  AMERICAN  SYSTEM  OF  BANKING. 

I  COME  now  to  the  disadvantages  of  our  banking  system.* 
The  banks  have  been  shewn  to  possess  the  power  of 
expanding,  and,  of  course,  of  contracting,  for  a  time,  the 
circulating  medium  of  the  district  in  which  they  operate ; 
and  this  power,  it  is  a  well  known  fact,  they  do  actually 
exert. 

When  the  circulating  medium  is  expanded,  a  given  portion 
of  it,  as  has  been  repeatedly  mentioned,  is  depreciated  in  value. 
Were  all  purchases  made  with  ready  money,  such  deprecia- 
tion would  be  of  no  account ;  for  the  prices  of  things  would 
rise  universally  in  the  very  same  proportion ;  and  the  various 
necessaries  and  luxuries  of  life  would  be  procurable  by  every 
one,  with  neither  more  nor  less  of  difficulty  than  heretofore.! 
But  the  case  is  very  difierent  where  credit  is  extensively  given 
to  purchasers,  and  where  the  practice  of  borrowing  prevails 
in  any  considerable  degree.     If  I  owe  any  one  a  thousand 

*  Besides  its  expensiveness,  already  considered. 
+  See  note  to  page  150. 


POLITICAL  ECONOBIY.  173 

dollars,  and  pay  him  at  a  period  when  an  expansion  of  the 
circulating  medium  has  taken  place  to  the  extent  of  a  tenth 
of  its  amount  at  the  time  of  the  incurring  of  the  debt,  he  will 
receive  a  less  value  than  he  ought  to  do.  Eleven  dollars  is 
now  worth  just  what  ten  was  before, — and  a  thousand  dollars 
is  worth  only  ten  elevenths  of  a  thousand,  or  not  quite  $910. 
The  like  is  manifestly  true  in  respect  to  every  debt,  whatever 
its  amount  may  be.  Debtors  will  be  benefited,  at  the  expense 
of  their  creditors,  throughout  the  community. 

On  the  contrary,  when  the  circulating  medium  is  unexpect- 
edly contracted,  opposite  consequences  will  ensue.  Creditors 
will  then  derive  benefit,  at  the  expense  of  those  who  are 
indebted  to  them. 

Although,  in  both  the  cases  just  considered,  the  wealth  of 
the  country  may  not  have  been  diminished,  since  what  was  one 
man's  loss  was  another's  gain,  it  will  not  follow  that  we  should 
be  indifferent  to  the  results  produced,  or  to  the  causes  pro- 
ducing them.  It  is  of  great  moment  to  keep  the  circulating 
medium  as  uniform  as  is  practicable  on  principles  of  justice, 
independently  of  any  considerations  of  expediency.  Such 
considerations,  however,  dictate  to  the  government,  as  well  as 
to  the  citizens  by  whom  the  government  is  influenced,  to 
endeavour  to  accomplish  this  object,  as  they  would  endeavour, 
to  the  extent  of  their  knowledge  and  ability,  to  protect  in  any 
other  way  the  rights  of  property. 

And  notwithstanding  there  has  been  here  no  destruction  of 
property,  but  only  a  transfer  of  it  from  one  individual  to 
another,  there  can  be  no  question  of  the  sum  of  human  happi- 
ness having  been  diminished.  The  truth  of  my  present  remark 
will,  I  think,  be  apparent  to  every  reader,  if  he  looks  at  what 
may  be  called  an  average  case ;  one  in  which  the  parties 
concerned  are  placed  in  a  pecuniary  point  of  view,  before  the 
supposed  transfer,  in  similar  circumstances.  Let  two  indivi- 
duals have  equal  incomes,  say  81000  each,  per  annum.  Will 
there  be  no  diminution  of  human  happiness  if,  unexpectedly 

23 


174  THE    PRINCIPLES    OF 

to  both,  their  arrangements  for  the  future  be  interfered  with, 
by  $500  being  taken  from  the  one  and  handed  over  to  the 
other  ?  Certainly  there  will  be.  The  distress  endured  by  the 
family  of  the  one  will  not  be  compensated  for  by  any  addi- 
tional luxuries  which  the  other's  family  will  be  enabled  to 
consume. 

But  there  is  yet  another  mode  in  which  fluctuations  in  the 
amount  of  the  circulation  are  productive  of  inconvenience, 
and,  when  they  are  in  any  degree  considerable,  of  the  severest 
distress.  Let  the  banks  refuse  to  discount  as  freely  as  they 
have  been  accustomed  to  do.  Money  will  be  rendered  less 
abundant,  and  therefore  more  difficult  to  be  procured.  The 
purchase  of  luxuries  may  be  postponed  with  comparative  ease ; 
and  even  the  necessaries  of  life  may  be  procured,  at  least  by 
a  portion  of  the  community,  upon  credit.  The  money,  how- 
ever, that  is  requisite,  for  the  fulfilment  of  existing  contracts, 
cannot  be  dispensed  with.  When  pay  day  comes,  this  must 
be  provided  for,  or  the  contracting  party  suffer  the  penalty 
attached  to  a  failure.  To  the  merchants  especially,  of  all 
classes,  this  penalty  is  a  severe  one,  in  respect  both  to  the 
pecuniary  losses  resulting  from  their  being  obliged  to  close 
their  business  and  adjust  their  accounts  under  most  disadvan- 
tageous circumstances,  and  to  the  injurious  consequences  to 
their  character  for  judgment  or  integrity.  They  will,  of 
course,  make  every  exertion  in  their  power  to  obtain  money, 
that  they  may  be  enabled  to  meet  their  engagements.  Many 
of  them  will  succeed  in  this,  by  consenting  to  give  to  the 
lenders  of  money  a  higher  interest  than  usual, — an  interest, 
too,  always  so  much  the  higher,  as  the  security  for  the  repay- 
ment of  the  principal  borrowed  is  the  less.  There  will, 
nevertheless,  be  many  others  who,  failing  to  obtain  the  requi- 
site means  for  complying  with  their  engagements,  will  become 
bankrupt.  The  persons  heretofore  dependent  upon  them  for 
employment  will  have  to  seek  it  elsewhere,  at  the  very  time 
when  it  will  be  most  difficult  to  be  obtained ;  and  much  dis- 


POLITICAL    ECONOMY.  175 

tress  must,  on  this  account,  occur.  And  this  is  far  from  giving 
us  a  full  view  of  the  distress  produced.  Those  individuals 
who  have  been  relying  upon  the  receipt  of  the  monej^s  due  to 
thetn  by  others,  and  who  have  failed  to  receive  such  payment, 
will  in  their  turn,  very  frequently,  be  prevented,  in  consequence, 
from  paying  with  punctuality  what  they  themselves  owe.  The 
distress,  of  which  I  am  speaking,  will  thus  be  extended  through 
the  various  ramifications  of  society,  and  will  be  every  where 
more  or  less  intensely  felt,  according  to  the  magnitude  of  the 
disturbance  to  which  the  currency  of  the  country  has  been 
subjected. 

The  class  of  inconveniences  and  injuries  which  has  just 
been  shewn  to  result  from  a  contraction  of  the  circulating 
medium  will,  it  is  manifest,  have  no  existence  in  the  opposite 
case  of  an  expansion  of  that  medium  beyond  its  ordinary 
amount.  But  more  than  this  :  not  only  will  no  inconvenience 
of  the  kind  be  in  any  degree  experienced,  but  a  scene  of  pros- 
perity will  be  every  where  exhibited.  Money  being  plentiful, 
the  merchants,  besides  punctually  paying  their  debts  when 
due,  will  be  prompt  to  make  new  purchases.  Relying  too  on 
the  continuance  of  this  state  of  things,  they  will  push  their 
credit  farther  than  they  were  accustomed  to  do.  If  the 
expansion  in  question  shall  go  on  for  a  time,  they  will  be 
enabled,  by  the  corresponding  rise  of  the  prices  of  commo- 
dities, to  realise  large  profits ;  and  speculations  generally,  by 
whomsoever  made,  and  of  whatsoever  kind,  will  eventuate 
successfully. 

All  this  would  be  well,  provided  the  course  of  things  were 
always  to  proceed  in  the  same  direction.  A  reaction,  how- 
ever, cannot  fail  to  take  place,  sooner  or  later  ;  and  the  proba- 
bility of  its  speedily  taking  place,  as  also  of  its  being  considerable 
in  degree,  will  depend  on  the  extent  of  the  previous  deviation 
of  the  currency  from  its  average  or  usual  state.  Supposing 
no  other  causes  to  operate  which  are  calculated  to  produce 
the  effect,  the  mere  augmentation  of  the  circulating  medium 


176  THE  PRINCIPLES  OF 

will,  before  long,  produce  it.  In  consequence  of  the  rise  of 
prices,  there  will  be  a  larger  importation  from  abroad,  and  a 
diminished  exportation  from  home,  of  commodities  other  than 
money,  as  has  been  before  fully  explained, — the  balance  being 
necessarily  paid  in  money ;  and  not  in  paper  money,  but  in 
specie.  A  demand  for  specie  will  be  made  upon  the  banks ; 
and  they  will  soon  be  forced  to  curtail  their  discounts  and 
thus  diminish  the  circulating  medium, — when  the  evils  before 
described  cannot  fail  to  occur.  Moreover,  the  reader  will 
need  no  laboured  argument  for  him  to  perceive  that,  should 
any  extraordinary  demand  for  specie  arise  from  any  other 
cause  than  that  above  mentioned,  and  arise  while  the  currency 
is  unduly  expanded,  the  contraction  of  it  which  succeeds 
will  be  liable  to  take  place  more  suddenly,  and  at  the  same 
time  more  extensively,  as  well  as  be  more  disastrous  in  its 
effects. 

The  evils  of  the  contraction  of  the  currency,  after  it  has 
been  expanded,  are  well  known  very  far  to  overbalance  the 
advantages,  or  seeming  advantages,  of  its  previous  expansion. 
Since,  also,  every  expansion  of  the  currency  must  necessarily 
be  followed  by  a  corresponding  contraction  of  it,  and  since 
the  banking  system  has  a  tendency  to  produce,  and  actually 
does  puoduce,  greater  and  more  frequent  fluctuations  of  it 
from  its  average  state  than  would  otherwise  take  place,  banks 
cannot  but  be  pronounced,  in  this  point  of  view,  to  be  institu- 
tions injurious  to  the  public  interests. 

I  must  not  forget  to  add  to  the  injurious  effects,  already 
mentioned  as  resulting  from  every  sudden  contraction  of  the 
currency  of  a  country,  the  diminished  production  which  must 
ensue  from  the  great  number  of  persons  who,  at  every  period 
of  the  kind,  are  thrown  out  of  employment  altogether,  or  are 
only  partially  employed.  This  is  sufficiently  known  to  every 
one,  not  to  require  any  illustration. 

In  my  reasonings  throughout  the  present  chapter,  I  have 
made  no  allusion  to  the  possibility  of  the  money  of  a  country 


POLITICAL  ECONOMY.  177 

circulating  with  more  or  less  rapidity ;  and  it  was  unnecessary 
for  me  to  have  done  so,  because  it  has  been  shewn  that  the 
effect  of  a  more  rapid  circulation  is  the  same  as  that  produced 
when  the  currency  has  been  increased  in  quantity, — and  that 
the  effects  of  a  slower  circulation  and  of  a  diminished  cur- 
rency are  likewise  the  same.  Besides,  when  the  currency  of 
a  country  is  suddenly  expanded,  the  faciUty  of  procuring 
money  will,  very  evidently,  cause  it  to  circulate  more  rapidly 
than  before,  thus  enhancing  the  effects  produced  by  the 
expansion.  When  a  sudden  contraction  of  the  currency 
takes  place,  a  less  rapid  circulation  will,  on  the  contrary, 
ensue,  which  will  conspire  with  such  contraction  to  give  a 
greater  degree  of  intensity  to  the  effects  produced  by  it. 


CHAPTER  XII. 


THE  SAME  SUBJECT  CONTINUED. 


The  evils  of  the  banking  system,  hitherto  exhibited,  have 
been  stated  to  be  the  results  of  ignorance  or  of  imprudence  on 
the  part  of  the  bank  directors,  while  acting  with  a  view  to 
the  interest  of  the  stockholders,  or  owners  of  the  capital 
invested.  There  will  be,  besides,  no  small  temptation  for  the 
directors  and  their  immediate  friends  to  speculate  successfully 
upon  the  rest  of  the  community,  through  the  instrumentality 
of  alternate  expansions  and  contractions  of  the  currency,  to 
be  produced  by  their  own  agency.  It  will  be  always  recol- 
lected that  it  is  in  the  power  of  a  bank,  or  of  a  number  of 
banks  acting  in  concert,  at  their  pleasure  to  cause  a  local  rise 
of  prices  by  enlarging  their  discounts,  and  thus  temporarily 
extending  their  circulation.    Let  us,  then,  suppose  an  exertion 


178  THE  PRINCIPLES  OP 

of  this  power  to  be  resolved  upon ;  and  wc  may  likewise  sup- 
pose the  resolution  adopted  to  be  known  only  to  the  bank 
directors,  and  to  a  limited  number  of  individuals  to  whom 
they  may  have  communicated  it.  I  need  scarcely  say  that 
these  parties  will  not  be  slow  to  avail  themselves  of  their 
exclusive  information.  They  will  go  into  the  market  and 
purchase  commodities,  including  stocks  of  all  kinds,  at  their 
existing  prices, — selling  out  again,  when,  on  account  of  the 
expansion  of  the  currency,  prices  have  attained  to  their 
greatest  height.  Since  now,  on  account  of  that  contraction 
of  the  currency,  which  will  be  necessarily  consequent 
upon  its  previous  expansion,  the  prices  of  things  will,  sooner 
or  later,  subside  to  their  former  level,  it  is  plain  that  the 
profits,  thus  made  by  the  speculators,  will  be  entirely  at  the 
expense  of  the  subsequent  purchasers.  Profits  too,  made  in 
this  manner,  cannot  be  classed  with  those  which  may  result 
from  ordinary  gaming  :  they  are  precisely  of  the  same  nature 
with  the  winnings  of  the  gambler,  who  uses  false  dice  or 
marked  cards,  unknown  to  his  victim  ;  and  the  act  of  ob- 
taining them  is  deserving  of  no  milder  epithet  than  that  of 
swindling,  or  robbery. 

On  the  occurrence,  also,  of  a  contraction  of  the  currency, 
the  banks,  instead  of  impartially  diminishing  their  accommo- 
dations to  all  classes  of  persons  with  whom  they  have  been 
accustomed  to  deal,  may  grant  extraordinary  loans  to  the 
directors,  or  other  favoured  individuals,  to  enable  them  to 
realise  a  considerable  gain  at  the  expense  of  the  rest  of  the 
community, — more  especially  of  the  mercantile  community. 
This  will  be  eflfected  by  the  lending  again  of  the  money,  thus 
obtained  from  the  banks,  at  a  higher  rate,  and  often  a  much 
higher  rate,  of  interest,  than  that  to  which  those  institutions 
are  by  law  restricted.* 

*  It  may  be  proper  for  me  here  to  disclaim  any  personal  allusions  on  my  part, 
m  the  foregoing  remarks  concerning  the  liability  of  the  directors  of. banks,  and  of 


POLITICAL    ECOXOMir.  179 

And  besides  these  unrighteous  speculations,  the  system  I 
am  considering  diffuses  throughout  the  community,  by  the 
frequency  and  extent  of  alternate  expansions  and  contractions 
of  the  currency,  a  more  active  spirit  of  speculation.  This  is 
an  evil ;  for  however  useful  the  commerce  of  speculation  may 
be  shewn  to  be  when  restricted  within  its  due  bounds,  it 
easily  degenerates,  if  stimulated  to  excess,  into  mere  gambling; 
becoming  then,  more  or  less,  a  source  of  public  corruption, 
although  it  may  be  generally  conducted  according  to  the 
ordinary  standard  of  fairness.  It  may  be  added  that  an 
undue  amount  of  speculation  implies  an  unnecessary  number 
of  exchanges ;  and  this,  again,  imphes  that  the  circulating 
medium  is,  on  the  average,  unnecessarily  large.  By  diminish- 
ing the  business  of  speculation,  our  share  of  the  circulating 
medium  of  the  world  will  be  lessened.  Other  conmiodities,  in 
the  manner  so  often  stated,  will  take  the  place  of  the  money 
dispensed  with ;  which  commodities,  whether  employed  as 
capital  or  not,  must  be  regarded  as  a  clear  gain  to  the  coun- 
try. But  there  can  be  no  doubt  of  a  portion  of  those  commo- 
ties  being  thus  employed.  It  is,  consequently,  perfectly  proper 
to  look  upon  every  augmentation  of  the  speculating  spirit  as 
equivalent  to  the  locking  up  of  a  certain  portion  of  the  national 
capital,  or,  in  other  words,  of  what  would  otherwise  have 
been  consumed  productively. 

Though  the  banks  should,  however,  be  conducted  with  a 
perfect  knowledge  of  the  principles  of  banking,  as  well  as  with 
the  utmost  prudence  and  integrity,  there  will  yet  be  other 
mischiefs  to  tell  of,  which  are  incident  to  their  operation  on 

other  dealers  in  money,  to  be  guilty  of  improper  courses.  Their  integrity  is, 
without  doubt,  in  general  fiilly  on  a  level  with  that  of  the  great  majority  of 
mankind;  and  indeed  in  most  instances,  as  is  attested  by  the  confidence  reposed 
in  them  by  their  fellow-citizens,  it  may  even  be  assumed  to  be  above  that  level. 
Some  of  the  class  of  persons  of  whom  I  am  speaking  I  am  happy  to  rank  among 
my  most  esteemed  and  intimate  friends.  They  must  know  that  it  is  quite  impos- 
sible that  I  intend  any  insinuations  to  their  prejudice. 


180  THE    PRINCIPLES    OF 

the  currency.  Assuming  again,  as  is  the  case  in  the  United 
States,  the  money  in  circulation  to  consist  of  paper,  witii  the 
exception  alone  of  the  metallic  money  required  for  purchases 
of  small  value,  let  an  extraordinary  demand  occur  for  specie, 
independently  of  any  action  of  the  hanks.  Such  a  demand 
may  originate  in  various  ways.  To  mention  one  of  these: 
Great  Britain  may  engage  in  a  war  on  the  continent  of 
Europe,  and  may,  on  this  account,  have  occasion  to  export 
thither  a  considerable  amount  of  specie.  An  extraordinary 
demand  for  money  in  that  country  will  immediately  arise,  and 
the  value  of  it  will  be  there  enhanced,  or,  what  is  the  same 
thing,  prices  generally  will  fall.  This  state  of  things  will,  of 
course,  not  be  confined  to  Great  Britain  alone.  British  goods 
will  be  exported  in  greater  quantity  than  before ;  and  the 
importations  in  return,  from  all  other  countries,  will  be 
lessened.  The  balance  arising  will  be  paid  in  specie.  What 
has  just  been  said  will  apply  especially  to  such  other  countries 
as  are  in  the  practice  of  importing  British  goods  most  exten- 
sively. Our  own  country  is  in  this  predicament,  and  an 
extraordinary  demand  for  money  may  thus  occur  here  very 
speedily  after  its  occurrence  abroad,  as  well  as  to  an  extent 
which  is  far  from  being  inconsiderable. 

Now,  under  the  circumstances  supposed  above,  let  a 
demand  be  made  for  a  given  amount  of  specie  to  be  exported 
from  the  United  States,  say  $100,000,  and,  for  the  sake  of 
illustration,  let  us  suppose  the  paper  of  all  the  banks  of  the 
country  in  circulation  to  amount  to  a  million  of  dollars,  based 
upon  half  a  million  of  specie.  The  specie  demanded  will  be 
drawn  from  the  banks ;  which  will  then  retain  in  their  vaults 
only  $400,000  in  hard  money.  They  will,  in  consequence, 
not  be  able  to  circulate  more  than  $800,000  of  their  paper, — 
acting,  as  I  have  assumed  them  for  the  present  to  act,  with 
undiminished  prudence.  Their  discounts  must  therefore  be 
proportionally  curtailed,  and  the  circulating  medium  by  this 
means  contracted  to  four  fifths  of  what  it  was  originally.  And 


POLITICAL    ECONOMY.  181 

if,  instead  of  the  banks  having  a  half  million  of  specie  in  their 
possession,  their  stock  of  it  was  only  $250,000,  they  would 
evidently  be  obliged,  when  $100,000  was  drawn  from  them, 
as  before,  to  curtail  to  double  the  extent.  These  examples 
will  suffice  to  shew  that,  so  long  as  specie  for  exportation  is 
procurable  from  the  banks,  a  contraction  of  the  circulating 
medium  will  take  place  to  a  much  greater  extent  than  the 
amount  of  specie  actually  exported.  On  the  supposition,  on 
the  other  hand,  of  there  being  no  other  money  in  circulation 
besides  specie,  the  exportation  of  any  given  amount  of  this 
from  the  country  would,  it  is  evident,  be  followed  by  no 
farther  reduction  of  the  circulating  medium.  Hence  the  reader 
will  perceive  another  ground  of  objection  to  our  existing  bank- 
ing system,  and  one  which  is  altogether  independent  of  the 
mode,  whether  proper  or  improper,  in  which  the  banks  of  the 
country  are  managed. 

But  it  may  be  said  that  the  existence  of  an  exclusive  specie 
circulation  is  not  a  supposable  case ;  because  other  sorts  of 
paper  money,  such  as  bills  of  exchange,  the  common  promis- 
sory notes  of  individuals,  &c.  wall  continue  to  circulate,  even 
though  bank  notes  should  cease  to  do  so.  This  would  not  in 
any  degree  invalidate  the  conclusion  just  arrived  at ;  provided 
such  paper  money  would  not  circulate  more  abundantly  in 
proportion  to  the  whole  amount  of  the  circulating  medium, 
when  it  does  not  consist  in  part  of  bank  notes,  than  when  it 
does.  Where,  however,  there  are  no  bank  notes  to  serve  any 
longer  as  a  substitute  for  hard  money,  the  reader  will  readily 
perceive  that  paper  money  of  every  other  description  will  be 
made  use  of  for  the  purpose  to  a  greater  extent  than  before, — 
but,  on  account  of  its  comparative  inconvenience,  it  is  evident 
not  to  an  extent  sufficiently  great  to  compensate  for  the  want  of 
hank  notes. 

24 


182  THE  PRINCIPLES  OP 


CHAPTER  XIII. 


THE  SAME  SUBJECXr  CONTINUED. 


The  disadvantages  of  the  existing  banking  system  of  the 
United  States,  which  have  been  stated  in  the  two  preceding 
chapters,  are  perhaps  not  susceptible  of  being  estimated  with 
the  same  degree  of  accuracy  as  the  advantages  of  that  system 
before  enumerated.  It  seems  to  me,  nevertheless,  that,  on  a 
review  of  those  disadvantages,  taken  in  connexion  with  the 
very  considerable  expenses  incurred  in  the  management  of 
banks  of  circulation,  the  reader,  even  though  he  should  have 
come  to  the  perusal  of  the  present  treatise  with  the  prevailing 
prejudices  in  favour  of  such  institutions,  can  scarcely  fail  to 
experience  doubts  as  to  their  utility,  all  things  considered  ;  and 
some  doubts  too  concerning  the  superior  advantages,  on  the 
the  whole,  of  a  bank  note  over  a  hard  money  circulating 
medium. 

But  I  have  not  yet  done  with  the  disadvantages  of  our 
banking  system.  There  is  a  class  of  these  which  attaches  to 
it  in  its  present  condition,  when  the  banks  are  not  so  numerous, 
nor  the  capital  actually  employed  in  banking  sufficiently  large 
to  preclude  their  dividends  from  exceeding  the  ordinary 
interest  of  money. 

I  advert  to  the  means  not  unfrequently  made  use  of  to 
obtain  from  our  state  legislatures  a  charter  for  a  new  bank, 
or  for  enlarging  the  capital  of  an  old  one, — to  the  mode  in 
which  the  newly  created  stock  is  distributed  among  the 
parties  who  are  desirous  of  obtaining  it, — to  the  contrivances, 
put  into  execution  by  many  of  those  w^ho  have  succeeded  in 
obtaining  a  considerable  portion  of  it,  in  order  to  give  to  it  an 
artificial  and  temporary  value, — and  to  the  tendency  of  every 


POLITICAL  ECONOMY.  183 

enlargement  of  the  banking  capital  of  the  country,  to  induce 
an  expansion,  and  subsequent  contraction  to  a  certain  extent, 
of  the  circulating  medium,  and  so  too  to  encourage  the  spirit 
of  speculation  and  of  gambling. 

After  what  has  already  been  delivered  concerning  money 
and  banking,  I  need  not  expatiate  at  any  length  on  the  several 
heads  just  enumerated.  It  will  be  sufficient  to  say  a  few 
words  only  in  relation  to  each  of  them. 

In  the  first  place,  in  as  much  as,  under  the  circumstances 
supposed,  the  banks  have  a  monopoly  of  the  power  of  issuing 
paper  money  of  a  certain  description, — a  power  equivalent 
also,  practically  speaking,  to  that  of  regulating  the  currency  of 
the  country, — every  application  to  the  legislature  for  an 
additional  banking  capital  amounts  to  the  applying,  on  the  part 
of  an  association  of  certain  individuals,  for  privileges  from 
the  enjoyment  of  which  the  great  majority  of  their  fellow- 
citizens  are  to  remain  excluded.  Just  in  proportion  to  the 
magnitude  of  those  privileges,  that  is,  in  the  case  under  con- 
sideration, in  proportion  to  the  profits  expected  to  be  made 
above  the  ordinary  profits  of  capital,  will  be  the  earnestness  with 
which  the  legislature  will  be  solicited.  All  the  vices  of  special 
legislation  will  ensue  in  their  most  aggravated  form.  Direct  and 
open  bribery  of  the  lawgivers  may  be  seldom  attempted,  and  the 
attempt,  when  hazarded,  may  be  for  the  most  part  repelled  ; 
but  there  are  indirect  modes  of  corruption  which  will  be 
found  sufficiently  unguarded  by  conscience  or  a  regard  to 
character,  to  enable  those  who  will  venture  to  employ  them 
to  accomplish  their  object,  in  many  cases  without  any  very 
persevering  or  inconvenient  resistance.  The  parties  who  are 
chiefly  interested  in  the  passage  of  the  proposed  law  are,  quite 
probably,  persons  of  considerable  influence  in  the  community; 
and  a  wealthy  corporation,  on  the  supposition  of  the  law 
actually  passing,  may  have  it  in  its  power,  by  the  granting  of 
loans  or  otherwise,  to  reward  the  exertions  of  its  friends  in  its 
behalf,  as  well  as  be  much  more  willing  to  do  so,  than  the 


184  THE  PRINCIPLES    OP 

public  generally,  or  the  classes  whose  interests  are  likely  to 
be  injuriously  affected,  would  be  to  serve  in  any  way  those 
who  are  active  on  their  side  of  the  question.  Expectations,  in 
this  state  of  things,  may,  it  is  evident,  be  easily  excited,  among 
certain  of  the  members,  and  especially  among  the  more  pro- 
minent members  of  the  legislature,  of  advantages  to  be 
conferred  by  the  corporate  body  which  is  asked  to  be  created, 
or  whose  privileges  it  is  proposed  to  enlarge, — without  the 
necessity  of  making  any  formal  promises,  to  be  fulfilled  after 
the  services  required  shall  have  been  rendered. 

One  of  the  modes  in  which  influential  men,  in  and  out  of 
the  legislature,  are  apt  to  profit  by  the  chartering  of  a  new 
bank,  is  by  the  opportunity  afforded  them  of  subscribing  to,  or 
of  early  procuring,  a  portion  of  its  stock ;  which  slock  very 
seldom  fails,  soon  after  the  original  distribution  of  it,  to  rise 
above  its  par  value.  But  independently  of  any  such  improper 
or  vicious  procurement  of  bank  stock,  the  fact  of  there  being, 
in  almost  every  instance  of  the  kind,  a  greater  demand  for 
bank  stock  than  there  is  stock  to  be  distributed,  will  open  a 
scene  of  intrigue  and  corruption.  Such  will,  at  least,  be  the 
case  in  any  of  the  modes  in  which  its  distribution  is  usually 
accomplished. 

The  value  of  the  newly  created  stock,  I  have  said,  seldom 
fails  very  soon  to  rise  a,bove  par.  This  is  the  natural  conse- 
quence of  the  dividends  of  the  banks  exceeding  generally  in 
amount  the  ordinary  interest  of  money,  and  of  the  new  bank, 
before  long,  obtaining  its  proportional  share  of  the  paper 
circulation  of  the  country.  Besides  this,  however,  an  artificial 
value  may  be  given  to  the  stock  for  a  comparatively  short 
time :  and  this  may  be  done,  not  only  by  the  various  arts 
which  are  every  day  practised  by  the  gamblers  in  stocks,  and 
which  it  is  not  necessary  for  me  here  to  specify,  but  likewise 
by  means  of  a  fictitious  demand  for  the  stock  before  it  is  dis- 
tributed,— he  who  is  really  desirous  of  subscribing  to  a  hundred 
shares  putting  in  a  claim  for  a  thousand,  and  so  on  in  like 


POLITICAL    ECONOMY.  186 

proportion.  Moreover,  it  may  be  mentioned  that,  when  any- 
stock  is  rising  in  value, — especially  when  the  rise  is  a  sudden 
and  rapid  one, — it  will,  for  this  very  reason,  experience  a  still 
farther  rise.  People  generally  will  be  more  desirous  than 
they  would  otherwise  have  been  to  obtain  it.  To  purchase  it 
now,  and  to  sell  it  out  after  a  certain  time  shall  have  elapsed, 
will  promise  to  be  a  profitable  speculation.  And  an  increased 
stimulus  to  the  corrupt  spirit  of  gambhng,  as  a  readier  means 
of  acquiring  wealth  than  the  regular  pursuits  of  industry,  will 
be  thus  administered.  I  need  not  mention  that  the  greater 
the  rise  in  value  of  the  bank  stock,  of  which  I  have  been 
speaking,  above  its  real  value,  the  sooner  will  it  be  apt  to 
decline  to  this  value,  and  the  greater  will  be  the  losses  of  the 
uninitiated  possessors  of  it,  who  have  continued  to  hold  on  to 
it  rather  than  sell. 

That  every  enlargement  of    the  banking    capital   of  the 
country  has  a  tendency  to  induce  an  expansion,  and   subse- 
quent contraction,  of  the  circulating  medium,  may  seem  to  be 
a  proposition  scarcely  consistent  with  the  doctrine  previously 
established,  that  the  circulation  which  is  obtained  by  a  new 
bank  is  obtained  by  it  at  the  expense  of  that  of  the  banks 
before  existing.      On  a  moment's  reflection,   however,   the 
apparent  inconsistency  will  disappear.     As  in  many  other 
cases  in  poUtical  economy,  where  our  conclusions,  legitimately 
deduced,  have  the  semblance  of  clashing  with  each  other,  the 
two  effects  in  question  relate  to  different  stages  in  the  progress 
of  change ;  the  effect  first  mentioned  being  an  intermediate 
or  temporary  effect ;  the  other  being  that  which  is  ultimately 
produced.     Where  the  banking  capital  of  a  country  is  rapidly 
augmented,  there  can  be  no  doubt  that,  in  the  struggle  between 
the  old  and  the  new  banks,  on  the  one  hand  to  retain  as  much 
of  their  circulation  as  they  can,  and  on  the  other  to  obtain  as 
much   of  it   as   possible,  the   whole  circulation  will  in  fact 
become  temporarily  increased  beyond  its   due   or  average 
amount ;  and  the  increase  may  be  so  great  as  to  be  produc- 


186  THE  PRINCIPLES  OF 

tive,  by  the  contraction  of  the  circulation  which  subsequently 
ensues,  of  all  the  distress  and  demoralisation  already  described 
as  the  infallible  consequence  of  every  extensive  and  sudden 
diminution  of  the  money  of  the  community. 

It  must  now  be  manifest  that  the  banks  of  a  country  may 
be  augmented  in  number,  and  its  banking  capital  augmented 
in  amount,  until  the  circulation,  which  each  bank  can,  ulti- 
mately and  on  the  average,  possess,  will  be  no  more  than  is 
adequate,  by  the  gross  profits  yielded  by  it  to  the  bank,  to 
enable  it  to  pay  the  expenses  of  management.  The  whole  of 
the  capital  will  then  yield  to  its  owners  merely  the  ordinary 
interest  of  money.  And  no  motive  for  investing  capital  in 
banking,  rather  than  in  any  other  business,  will  any  longer 
exist. 


CHAPTER  XIV. 

EVILS     IMPROPERLY      ATTRIBUTED     TO    BANKS     OF      CIRCULATION 

EFFECTS  OF  EXACTING  A  BONUS    FROM  THE  STOCKHOLDERS    OF  A 

BANK     AS     A     CONDITION     OF     ITS     BEING     INCORPORATED AND 

EFFECTS    OF    THE    GOVERNMENT    OF    A    COUNTRY    ASSUMING    TO 
ITSELF  THE  BUSINESS  OF  BANKING. 

There  are  two  evils  which  those  persons  who  are  most 
opposed  to  the  continuance  of  our  present  system  of  banking 
are  in  the  habit  of  attributing  to  it,  and  of  urging  against  it 
perhaps  more  frequently  than  any  others ;  which  evils  are, 
notwithstanding,  in  a  great  measure,  if  not  altogether, 
unfounded. 

The  first  of  these  is  that,  by  the  power  which  the  banks 
possess  and  actually  do  exert  of  augmenting  the  quantity  of 
money  in  the  country,  they  cause  a  general  rise  of  prices,  and 


POLITICAL  ECONOMY.  187 

thus  render  it  more  difficult  for  the  great  body  of  the  people, 
— of  the  poorer  classes  of  the  people  especially, — to  procure 
the  means  of  support  to  which  they  have  been  accustomed. 
That  this  objection  is,  as  I  have  said,  in  a  great  measure 
unfounded,  results  from  the  impossibility  of  the  banks  effecting 
more,  by  the  issuing  of  their  paper  to  an  unusual  amount, 
than  a  temporary  augmentation  of  the  circulating  medium, — 
a  proposition  which  my  readers  will  recognise  to  have  been 
fully,  and  I  hope,  satisfactorily  established.  But  even  though 
such  augmentation  of  the  circulating  medium  were  perma- 
nent, instead  of  temporary,  it  would  not  follow  that  any 
portion  of  the  community  would  have  their  command  over 
the  necessaries  and  luxuries  of  life  in  any  wise  diminished. 
Whatever  alterations  in  this  respect  might  take  place  while 
that  medium  was  in  process  of  being  augmented,  on  account 
of  the  prices  of  all  things,  including  the  wages  of  labour,  not 
from  the  first  falling  in  the  same  proportion, — eventually,  that 
is  when  prices  shall  again  have  become  steady,  they  will 
bear  very  nearly  the  same  relation  to  each  other,  in  respect 
to  every  commodity,  as  they  did  before  the  commencement 
of  their  fall. 

The  second  of  the  two  objections,  now  adverted  to,  rests  on 
the  opinion  that  the  profits  of  banking,  over  and  above  the 
ordinary  interest  of  money,  is  a  gain  of  the  bankers,  or 
stockholders  of  banks,  at  the  expense  of  all  other  classes  of 
the  people ;  and  it  is  therefore  an  objection  which  is  well 
calculated,  wherever  entertained,  to  render  our  system  of 
banking  obnoxious  to  much  popular  odium.  So  far  from  its 
being  well  founded,  my  readers  will  probably  be  prepared, 
before  any  farther  remarks  on  my  part,  to  look  upon  the 
profits  of  which  I  speak  as  a  measure, — or  at  least  an  approx- 
imate measure, — of  the  benejit  conferred  on  the  country  by 
the  substitution  of  a  bank  note  for  a  specie  circulation,  that  is 
by  the  substitution,  for  the  production  of  the  specie  dispensed 
with,  of  that  of  commodities  of  a  different  description.    In  as 


188  THE  PRINCIPLES  OF 

much,  indeed,  as  the  amount  of  the  whole  circulating  medium 
is  not,  on  the  average,  afTected  by  the  action  of  the  banks, 
neither  will  the  prices  of  things  be  in  any  manner  affected 
thereby,  and  money  will  be  procurable  (also  on  the  average) 
in  the  same  quantity,  as  well  as  on  the  same  terms,  as  if 
there  were  no  banks  of  circulation  in  existence.  As  no  one, 
then,  is  a  loser  in  the  case  under  consideration,  the  extraor- 
dinary gains  of  the  banks  must  necessarily  be  a  national 
gain. 

Since  the  due  appreciation  of  this  argument  is  a  point  of 
no  slight  importance,  I  shall  state  one  or  two  modifications  of 
which  the  conclusion  come  to  is  susceptible ;  and  the  reason 
will  be  apparent  why  I  have  hinted  that  the  profits  in  ques- 
tion constitute  only  an  approximate  measure  of  the  benefit 
which  is  conferred  on  the  country  by  the  mere  substitution  of 
a  circulation  of  bank  notes  in  place  of  one  composed  of  the 
precious  metals.  I  shall  make  this  statement,  too,  at  the 
hazard  of  repeating  perhaps  principles,  with  which  the 
reader,  at  this  time,  may  be  perfectly  familiar,  and  which  he 
may  be  able  to  apply  with  quite  as  much  facility  as  the 
writer. 

The  bank  notes  which  are  put  into  circulation  may  not  be 
of  exactly  the  same  amount  with  that  of  the  specie  they  dis- 
place. Because  they  circulate,  on  the  average,  more  rapidly 
than  hard  money,  a  less  amount  of  them  will  be  able  to 
perform  the  same  office ;  which  circumstance  will  render  the 
extraordinary  profits  of  the  bankers  a  deficient  measure  of 
that  portion  of  the  public  gain  which  is  now  under  considera- 
tion. Again,  the  various  other  sorts  of  paper  money,  or 
contrivances  for  economising  the  use  of  the  precious  metals, 
have  been  stated  to  be  employed  somewhat  more  extensively 
when  no  bank  notes  circulate  than  when  they  do.  On  this 
account,  more  bank  notes  can  be  permanently  retained  in 
circulation  than  would  be  of  equal  value  with  the  specie 
excluded ;  and  the  profits  of  the  banks,  beyond  the  ordinary 


POLITICAL  ECONOMY.  189 

interest  of  the  specie  they  possess,  will  therefore  err  as  a 
measure  of  the  kind  which  has  been  mentioned,  and  this 
errour  will  be  in  excess.  And  once  more,  the  introduction  of 
a  paper  money  to  any  extent  into  the  circulation  has  been 
shown  to  render  unnecessary  the  production  of  the  precious 
metals  under  circumstances  quite  as  disadvantageous  as 
before;  thus  reducing  the  cost  of  producing  them,  and  conse- 
quently their  value,  in  a  very  slight  degree.  This,  in  its  turn, 
will  establish  a  somewhat  augmented  circulating  medium ; 
which  is  the  same  thing  as  to  say  that  more  bank  paper  will 
be  added  to  the  circulation  than  there  will  be  specie  taken 
from  it ;  and  another  errour  thus  arises,  likewise  in  excess. 

Should  the  interest  of  money  at  any  time  differ  from  its 
general  or  average  rate,  it  is  plain  that  the  conclusion,  into 
the  correctness  of  which  I  am  now  inquiring,  will  not  need  to 
be  therefore  subjected  to  the  least  modification ;  for  the 
difference  >between  what  the  borrowers  will  have  to  pay  to 
the  lenders  of  money  for  its  use,  and  the  average  rate  at 
which  money  can  be  procured,  will  only  be  so  much,  more  or 
less,  transferred  from  one  set  of  individuals  to  another  in  the 
same  country,  and  will,  consequently,  not  at  all  affect  the 
amount  of  national  wealth. 

But  it  may  be  justly  urged  that  if  the  extraordinary  profits 
in  quesiion  be,  in  truth,  a  national  gain,  they  ought,  instead  of 
going  into  the  private  coffers  of  the  bankers,  to  be  made  to 
find  their  way  into  the  pubHc  •  treasury;  and  it  may  be 
asserted  that,  for  this  reason,  the  present  state  of  things 
among  us  enables  those  who  invest  any  portion  of  their 
capital  in  the  business  of  banking  to  derive  a  profit  at  the 
expense  of  the  community  at  large.  It  is  to  take  from  the 
bankers  these  undue  monopoly  gains  that  our  state  legisla- 
tures have  generally,  on  the  incorporation  of  a  bank,  exacted, 
as  the  price  of  so  doing,  a  bonus  from  the  stockholders.  Such 
bonus  may  be  made  to  assume  the  form  of  a  specific  sum  to 
be  paid  into  the  treasury  of  the  state,  on  the  commencement 

25 


190  THE  PRINCIPLES  OF 

of  its  operations  by  the  bank,  or  at  any  time  or  times  there- 
after,— or  it  may  consist  of  a  certain  proportion  of  the  annual 
profits  of  the  capital  to  be  invested, — or  certain  loans  or  other 
financial  services  may  be  stipulated  for.  as  a  price  for  the 
privileges  conferred. 

If  the  expediency  of  the  existence  of  banks  of  circulation 
be  conceded,  and  if  no  other  banks  than  those  on  which  the 
legislature  has  specially  conferred  the  power  to  do  so  are 
permitted  to  issue  paper  money, — the  objections  to  the 
receiving  of  a  bonus  by  the  state,  on  the  incorporation  of  a 
new  bank,  and,  of  course,  also  on  the  enlarging  of  the  capital 
of  one  already  existing,  are  twofold :  it  will  be  apt  to  induce 
the  creation  of  banking  capital  much  more  rapidly  than 
would  otherwise  be  the  case,  for  the  purpose  of  thereby  sup- 
plying a  public  revenue,  which  will  put  it  in  the  power  of  the 
legislators  to  dispense  in  a  certain  degree  with  the  ever  more 
or  less  odious  measure  of  taxation ;  and  it  will  have  a  ten- 
dency, quite  as  much  as  any  other  circumstance  connected 
with  the  practical  operation  of  our  banking  system,  to  cor- 
rupt the  integrity  of  the  legislative  body, — a  tendency  which, 
after  what  has  been  delivered  in  the  preceding  pages,  calls  for 
no  illustration  here. 

All,  however,  that  w^ould  be  requisite,  to  guard  efl'ectually 
against  the  too  rapid  increase  of  the  number  of  banks,  would 
be  for  the  legislature  to  exact  in  every  case  a  bonus  high 
enough  to  leave  to  the  stockholders  little  more  than  the 
ordinary  interest  of  their  money.  Were  they,  too,  to  exact 
a  bonus  just  so  large  as  to  leave  to  the  stockholders  the  ordi- 
nary interest  of  money,  it  is  manifest  that  an  effectual  check 
would  be  applied  to  the  increase  of  the  banking  capital  of  the 
country,  any  faster  than  the  general  progress  of  population 
and  wealth. 

Another  method  by  which  the  government  can  profit 
directly  from  the  extraordinary  gains  of  banking,  is,  as  has 
sometimes  been  done,  to  assume  to  itself  the  business  of  a 
banker.    The  directors  of  the  banks  will,  in  such  case,  be 


POLITICAL  ECONOMY.  191 

public  officers  appointed  by  the  legislature,  or  by  some  authority 
emanating  from  the  legislature ;  and  the  net  proceeds  of  those 
institutions  may  be  appropriated  to  meet  the  various  demands 
on  the  public  treasury.  This  system  of  banking  is  especially 
objectionable  because  of  its  exceedingly  great  liability  to  the 
being  perverted  to  party-political,  or  still  worse  purposes. 
Skilfully  wielded  by  those  who  are  in  the  possession  of  the 
chief  influence  in  the  state,  it  cannot  fail  to  be  a  most  efficient 
engine  for  the  prolongation  of  their  power,  considerably 
beyond  the  period  when  they  shall  have  ceased  to  enjoy  the 
confidence  of  the  people.  And  this  assertion  will  not  appear 
to  be  an  unfounded  one  to  any  of  my  readers  who  reflect 
that,  not  only  in  the  case  supposed,  does  the  government,  as 
has  been  mentioned,  possess  the  direct  patronage  resuUing 
from  the  appointing  by  it  of  all  the  directors  of  the  banks,  but 
that  it  also  exerts  indirectly  the  whole  of  that  patronage 
which  is  connected  with  the  power  of  discounting,  or  of 
refusing  to  discount,  the  promissory  notes  of  individuals,  as 
the  directors  of  the  banks  may,  in  thsir  discretion,  choose. 

Here  I  may  make  the  general  and  quite  obvious  remark, 
that  in  order  to  prevent  the  monetary  system  of  a  country 
from  being  employed  by  the  government,  as  a  political  instru- 
ment, to  enable  it  to  maintain  itself  against  the  legitimate 
opposition  of  public  opinion,  it  is  in  a  high  degree  desirable 
that  the  system  should  be  as  little  under  its  control  as  is  prac- 
ticable, consistently  with  the  public  interests. 


192  THE  PRINCIPLES    OP 


CHAPTER  XV. 

COMPARATIVE  ADVANTAGES  AND  DISADVANTAGES  OF  MANY  OR  OF  A 
FEW  BANKS  OF  CIRCULATION REMARKS  CONCERNING  A  NATION- 
AL BANK AND  CONCERNING  A  FREE  TRADE  IN  THE  BUSINESS  OP 

BANKING. 

A  QUESTION  of  some  moment,  in  the  actual  organisation  of 
the  American  banking  system,  is, — whether,  with  a  given 
amount   of  capita]  invested  in  the   business  of  banking,    a 
smaller  or  a  larger  number  of  banks  is  the  preferable  arrange- 
ment.    I  reply,  that,  provided  their  number  be  not  multipHed 
to  such  an  extent  as  to  increase  unduly  the  expenses  of  bank- 
ing, there  seems  to  me  to  be  the  following  reasons  in  favour 
of  many  banks ;  first,  that  the  advantages,  whatever  these 
may  be,  of  the  system,  would  then  be  more  equally  diffused 
throughout  every  portion  of  the  country;  secondly,  that  the 
check  to  the  over-issue  of  paper  money  by  the  several  banks 
will  be  greater  than  if,  on  account  of  the  smaliness  of  their 
number,  they  had  a  greater  facility  of  combining  together ;  and 
lastly,  the  undue  influence,  political  or  social,  of  wealthy  monied 
corporations,  would  be  diminished,  or  entirely  removed.     On 
the  other  hand,  however,  we  have,  to  set  in  opposition  with 
these  advantages,   the  following  disadvantages.     First,  it  is 
well  known  to  be  the  general  fact,  that  the  directors  and 
officers  of  the  smaller  of  the  incorporated  banks  have  not 
generally  the  same  practical  skill  in  banking,  as  is  possessed 
by  the  managers  of  the  more  extensive  institutions  of  the 
kind ;  and  we  must  therefore  infer  that,  when  the  number  of 
banks  is  augmented,  and  the  capital  of  each  of  them  is,  on  the 
average,  lessened  in  amount,  the  danger  of  improper  manage- 
ment will  become  proportionally  greater.     Secondly,  although 


POLITICAL  ECONOMY.  193 

the  greater  the  number  of  independent  banks  in  a  community, 
the  more  efficiently  will  they  act  upon  one  another  to  prevent 
a  larger  issue  of  paper  money  by  any  one  of  them  than  its 
proportional  share  of  the  whole  paper  circulation  of  the 
country,  it  seems  to  me  that  the  general  tendency  to  an  expan- 
sion of  the  currency,  to  be  succeeded  of  course  by  a  contrac- 
tion of  it,  is  much  more  considerable  where  many  than  where 
a  few  banks  are  competing  with  each  other  to  obtain  as  large  a 
portion  of  the  circulation  as  they  respectively  can.  And 
thirdly,  when  banks  are  very  much  multiplied,  the}'  are  apt 
to  be  established  as  well  in  places  where  there  is  little,  as 
where  there  is  much  trade ;  and,  in  consequence,  the  farmers, 
as  well  as  others  whose  capitals  are  not  turned  as  often  as 
that  of  the  merchants,  are  tempted,  by  the  facilities  aflbrded 
them  by  those  institutions,  to  become  indebted  to  them,  thus 
preparing  the  way,  in  the  event  of  a  curtailment  of  bank 
accommodations  being  rendered  necessary,  for  embarrass- 
ment, and  perhaps  ruin,  to  themselves  and  famihes.  To  these 
disadvantages  may  be  added,  in  the  fourth  place,  the  greater 
probability  of  bank  notes  being  counterfeited  when  they  are  of 
many  different  descriptions  than  when  they  are  of  a  few. 

There  are  two  portions  of  the  community  who  will  be  disposed 
to  decide  very  differently,  on  a  compai'ison  of  the  advantages 
and  disadvantages  which  have  been  enumerated.  I  mean  the 
friends  of  a  national  bank,  and  the  advocates  of  a  free  trade  in 
banking,  that  is  of  permission  being  given  to  all  individuals,  or 
associations  of  individuals,  to  engage  in  the  business  of  banking, 
at  their  pleasure,  as  they  are  at  present  permitted  to  engage  in 
every  branch  of  mercantile  employment.  The  former  class  look 
upon  a  bank  having  a  large  capital,  with  branches  distrlt)uted 
through  the  different  states  composing  the  Union,  as  not  only 
adequate  to  regulate  the  currency,  by  restraining  the  circula- 
tion of  the  numerous  state  banks  within  their  due  bounds, 
but  as  absolutely  indispensable  to  protect  the  community  from 
the  evils  which  these  would  otherwise  inflict  upon  it. 


IM  THE  PRINCIPLES  OP 

The  propriety  of  a  bank  of  this  description  being  chartered 
by  the  general  government  (on  the  supposition  of  the  contin- 
ued existence  of  our  present  banking  system)  will  depend  on 
the  practicability  of  constituting  it  in  a  manner  to  be  less 
likely  to  cause  a  derangement  of  the  money  market,  than  the 
mstitutions  are  whose  unsteady  action  it  is  appointed  to  regu- 
late. And  the  propriety  of  the  chartering  of  such  a  bank  will 
depend,  farther,  upon  the  degree  in  which  its  action,  as  a 
regulator  of  the  currency,  renders  it  of  advantage  to  the 
country.  The  advantage,  in  this  respect  conferred  by  it, 
should,  in  order  to  justify  its  incorporation,  be  at  least  consi- 
derable enough  to  overbalance  the  objection  to  it  which  is 
founded  on  the  probability  of  the  social  or  political  influence 
which  it  may,  and  perhaps  cannot  but  possess,  being  impro- 
perly exercised.  This  is  all  that  I  deem  necessary  to  be  said 
here  concerning  the  expediency  of  incorporating  a  national 
bank ;  and  the  question  of  the  constitutionality  of  doing  this 
does  not  belong  to  the  subject  of  the  present  treatise. 

With  respect  to  a  free  trade  in  banking,  it  appears  to  me 
very  evident  that  all  the  disadvantages  which  have  been 
specified,  of  the  multiplication  of  banks  of  circulation,  would, 
in  consequence  of  its  introduction,  be  carried  to  an  extreme. 
Paper  money,  of  even  the  smallest  denominations  of  value, 
would  be,  in  every  village,  and  in  every  neighbourhood, 
issued  profusely,  and  not  by  the  most  resfonsible  individuals 
only.  The  specie  of  the  country  would  thus  be  expelled  from 
the  circulation ;  which,  I  may  say,  would  necessarily  fall  into  a 
state  of  complete  anarchy.  In  so  far  also  as, — on  the  occur- 
rence of  a  suspension  by  the  banks  of  specie  payments,  and  the 
consequent  practical  repeal  for  a  time  of  the  laws  against  the 
general  issuing  of  paper  money, — experience  among  ourselves 
of  the  readiness  with  which  the  promissory  notes  of  compara- 
tively irresponsible  associations  of  men,  and  even  of  irrespon- 
sible individuals,  have  entered  into  the  circulation,  throws  light 
on  what  would  take  place  in  a  state  of  things  were  every  one 


POLITICAL    ECONOMY.  195 

would  be  at  full  liberty  to  put  forth  his  notes  on  the  condition 
of  paying  them  in  specie  on  demand,  —  my  reasoning  will 
acquire  additional  force. 

In  objecting  to  a  free  trade  in  banking,  so  long  as  every 
hanker  is  permitted  to  add  to  the  paper  money  of  the  country, 
I  make  no  account  of  the  evils  manifestly  resulting  from  the 
act,  or  process,  of  introducing  it.  Here,  as  in  almost  all  the 
cases  which  can,  by  possibility,  come  under  the  cognisance  of 
the  political  economist,  the  evils,  incidental  to  a  transition  from 
one  state  of  things  to  another,  can  be  almost  entirely  avoided 
by  simply  making  the  transition  sufficiently  gradual. 


CHAPTER  XVI. 

LIABILITY  OF  A  CURRENCY  TO  BE  MORE  EXPANDED  OR  CONTRACTED, 
ACCORDING  AS  IT  CONSISTS  IN  A  GREATER  DEGREE  OP  PAPER 
MONEY INFERENCE  TO  BE  DRAWN. 

On  a  review,  now,  of  all  that  has  been  slated,  in  the  present 
book,  concerning  the  relative  advantages  of  a  bank  note  and 
of  a  metallic  currency,  I  am  not  sure  that  I  would  not  prefer 
one  composed  exclusively  of  the  precious  metals,  if  no  other 
choice  presented  itself  excepting  a  currency  like  that  which 
exists,  or  to  speak  more  correctly,  like  that  which  existed  in 
the  country  previous  to  the  late  suspension  of  specie  payments, 
with  all  its  liability  to  give  occasion  to  such  an  event. 

But  our  choice  is  fortunately  not  confined  to  so  narrow 
bounds.  By  prohibiting  the  circulation  of  bank  notes  of  the 
smaller  denominations,  we  would  have  a  inixed  currency ; 
which  we  may  readily  conceive  to  be  preferable  to  one  com- 
posed either  exclusively  of  paper  money,  or  exclusively  of  the 


196  THE  PRINCIPLES  OF 

precious  metals.  In  proportion  as  the  paper  part  of  the  cur- 
rency is  diminished  in  amount,  will  the  whole  of  it  possess  in 
a  less  degree  the  elasticity  of  a  medium  of  exchange  that  is 
supplied  altogether  by  the  banks.  An  extraordinary  demand 
for  specie  to  be  exported  abroad,  or  for  any  other  purpose, 
will  not  require  so  great  a  curtailment  of  bank  accommoda- 
tions. Here,  however,  it  may  be  said  that  the  supposition  of 
a  mixed  currency  being  preferable  to  one  altogether  metaUic, 
implies  a  superiority  of  pajier  over  hard  money,  and  conse- 
quently, whatever  this  superiority  may  amount  to,  that  it  will 
be  augmented  just  according  as  the  currency  approaches  to  a 
purely  paper  condition.  If  this  view  then,  of  the  nature  of  a 
mixed  currency,  be  a  correct  one,  we  shall  be  again  reduced  to 
the  dilemma  of  choosing  between  an  exclusively  metallic  and 
an  exclusively  paper  currency.  That  it  is  not  a  correct  one, 
I  shall  endeavour  to  make  distinctly  appear  to  the  reader. 

While  the  advantages  which  paper  money  possesses  over 
hard  money  in  other  respects, — granting,  for  the  present,  an 
excess  of  advantages  above  disadvantages  to  exist  in  the  case, 
— will  be  proportional  to  the  quantity  of  paper  money  in  cir- 
culation ;  there  is  one  disadvantage  necessarily  to  become  of 
greater  account  than  in  proportion  to  the  augmentation  of 
such  money.  In  order  to  explain  the  disadvantage  to  which 
I  am  adverting,  let  us  look  at  an  instance  or  two  of  an  aug- 
mentation of  it  occurring.  Let  us,  first,  suppose  the  specie 
circulating  in  a  particular  country  to  amount  to  a  million  of 
dollars,  and  the  paper  money  to  be  a  like  sum  in  bank  notes 
of  the  higher  denominations.  If  in  this  state  of  things,  a 
demand  for  $100,000  in  specie  be  made,  that  it  may  be 
exported  from  the  country,  or  for  any  other  purpose,  the 
circulation  will  be  diminished  to  a  greater  extent  than  that 
sum ;  and  although  there  may  be  but  few  of  my  readers  who 
will  not  be  prepared  to  assent  at  once  to  the  correctness  of  this 
result, — for  the  sake  of  these  few,  I  shall  exhibit  the  steps  by 
which  it  will  be  brought  about.      The  sum  required  will  not 


POLITICAL  ECONOMY.  197 

be  wholly  taken  from  the  specie  in  circulation,  but  a  part  of 
it  will  be  drawn  from  the  banks.  For  were  the  specie  alone 
which  circulated  reduced  in  amount,  the  consequence  will  be 
that  an  undue  amount  of  the  whole  circulating  medium  would 
consist  of  bank  notes.  A  demand  would  be  made  upon  the 
banks  for  specie  in  exchange  for  a  portion  of  them  ;  by  which 
means  the  proper  proportions  would  be  again  restored  between 
the  different  kinds  of  money.  But,  it  is  scarcely  necessary  to 
remark,  from  the  very  moment  when  the  demand  of  which  I 
first  spoke  shall  have  occurred,  specie  will  be  drawn  from  the 
banks,  as  well  as  from  the  specie  actually  circulating,  to  supply 
it ;  and  the  proportion  of  hard  money  to  paper  money  will  be 
preserved  nearly  uniform,  during  the  whole  period  of  the 
abstraction  of  the  specie  demanded.  How  much  of  the  specie 
abstracted  will  be  taken  from  what  is  in  circulation,  and  how 
much  from  the  vaults  of  the  banks,  will  depend  on  the  propor- 
tion which  the  whole  of  the  specie  in  the  possession  of  the 
banks  bears  to  the  amount  of  it  which  circulates.  In  the  case 
I  have  supposed,  if  we  assume  the  specie  of  the  banks  to 
amount  in  value  to  one  half  of  the  notes  they  have  issued,  it 
will  appear,  by  a  very  simple  calculation,  that  a  third  part  of 
the  specie  required,  or  J$33,333  will  be  drawn  from  the  banks, 
— that  the  paper  circulation  will  be,  consequently,  $66,666 
less  than  before,  —  and  that  the  whole  circulation  will  be 
reduced  $133,333. 

Now  let  us  examine  another  instance.  Still  supposing  the 
specie  demanded  to  amount  to  $100,000,  and  the  whole  cir- 
culating medium  to  two  millions  of  dollars,  and  supposing  also 
the  same  proportion  as  in  the  preceding  instance  of  the  circu- 
lation of  the  banks  to  the  specie  on  which  it  is  based,  namely 
that  of  two  to  one, — let  the  specie  circulating  amount  to  two- 
fifths  of  a  million,  and  the  paper  money  to  a  million  and  three- 
fifths  of  a  million  of  dollars.  The  like  calculation  as  before 
will  shew  us  that  the  $100,000  in  question  will  be  taken,  one 
third  from  the  specie  circulation,   and  two-thirds  from  the 

26 


198  THE    PRINCIPLES  OP 

specie  of  the  banks,  and  that  the  whole  sum  by  which  the  cir- 
culation will  be  lessened  will  amount  to  $166,GGG. 

If  we  compare  together  the  two  instances  which  have  been 
stated,  of  the  effects  produced  upon  a  mixed  currency  by  the 
occurrence  of  an  extraordinary  demand  for  specie,  and  note, 
besides,  that  the  contraction  of  the  currency,  if  this  had  con- 
sisted only  of  specie,  would  have  amounted  just  to  $100,000, 
the  following  inference  will  present  itself, — that  the  additional 
contraction  of  it,  resulting  from  the  substitution  of  bank  notes 
in  the  place  of  specie,  is  not  greater  merely  in  exact  proportion 
to  the  augmented  quantity  of  the  paper  money  in  the  currency, 
but  that  the  extent  of  the  contraction  increases  more  rapidly 
than  the  quantity  of  paper  money  does.  The  same  inference, 
too,  may  be  deduced  from  a  comparison  of  any  other  instances 
of  the  kind  which  may  be  examined.  Conversely,  we  may, 
of  course,  infer  that  the  expansions  to  which  a  mixed  currency 
is  liable,  beyond  those  of  one  consisting  entirely  of  specie,  will 
augment  more  rapidly  than  the  bank  paper  which  may  be  suc- 
cessively substituted  for  specie  in  the  currency. 

The  conclusion  follows  that,  however  the  advantages  may 
otherwise  preponderate  over  the  disadvantages  of  a  circulation 
of  bank  notes,  we  have  here  a  reason  why  the  community  will 
be  liable  to  suffer  inconveniences,  and  will  therefore  from  time 
to  time  actually  suffer  them,  to  an  extent  nwre  than  propor- 
tional to  the  paper  money  substituted  in  the  circulation  for 
specie.  And  we  are  now  entitled  to  consider  the  proposition 
as  proved, — that,  very  possibly,  a  currency  composed,  in  cer- 
tain proportions,  of  specie,  and  of  paper  convertible  into  specie 
on  demand,  may  be  preferable  to  one  containing  either  less  or 
more  of  specie. 

This  proposition,  indeed,  would  still  hold  good  even  though 
the  hability  of  the  currency  to  extraordinary  expansions  and 
contractions,  arising  out  of  the  substitution  of  paper  money 
for  specie,  did  not  increase  any  faster  than  such  substitution  ; 
and  for  this  reason,  that  a  double  contraction  of  the  currency, 


POLITICAL    ECONOMY.  199 

as  every  practical  banker  or  man  of  business  knows,  is  pro- 
ductive of  much  more  than  a  double  amount  of  inconvenience 
and  distress,  among  the  merchants,  and  the  community  at 
large. 

But  notwithstanding  the  possibility  has  been  established  of 
a  mixed  currency,  of  a  paper  money  issued  by  the  banks  and 
of  specie,  being  of  more  advantage  to  a  country  than  one  of 
either  of  these  separately,  it  would  be  very  difficult  to  prove, 
a  priori,  that  such  is  in  fact  the  case.  With  all  our  experience, 
also,  on  the  subject  of  banking,  we  find  the  opinions  of  the 
most  intelligent  men  in  the  community  ranging  through  the 
whole  extent  of  the  interval  between  an  exclusive  bank  note 
and  an  exclusive  specie  circulation.  And,  indeed,  to  determine 
the  peculiar  constitution  of  the  most  desirable  currency, 
whether  composed  in  part  of  bank  notes  or  not, — having  an 
especial  regard  to  the  rendering  a  given  portion  of  it,  as  nearly 
as  possible,  always  of  the  same  value, — is,  at  present,  truely  the 
great  desideratum  in  our  science.  It  may  be  added  that  the 
difficulty  of  doing  this  can  only  be  adequately  appreciated  by 
those  who  have  made  political  economy  their  particular  study. 
They  too,  will  hesitate  to  pronounce  a  positive  judgment  con- 
cerning any  course  of  legislation  which  may  be  proposed  for 
the  purpose,  where  the  mere  zealots  of  a  party  will  be  prompt 
to  dogmatise  on  the  subject. 


200  THE    PRINCIPLES    OF 


CHAPTER  XVII. 

THE  MOST  DESIRABLE  CIRCULATING  MEDIUM  FOR  THE  UNITED 

STATES. 

An  expression  of  opinion  on  the  problem  of  the  most  desira- 
bb  circulating  medium,  more  particularly  in  reference  to  the 
United  States,  will,  naturally  enough,  be  expected  from  a 
systematic  writer  on  the  theories  of  money  and  of  banking, 
and  in  a  work  published  at  a  period  when  so  large  a  portion 
of  the  public  attention  is  directed  to  those  theories,  in  their 
especial  bearing,  also,  on  the  problem  in  question.  I  shall, 
accordingly,  state  the  result  of  my  reflections  on  the  subject ; 
leaving  it  to  the  careful  and  unprejudiced  consideration  of  my 
readers. 

In  view  of  the  difficulties  which  have  been  stated  of  other- 
wise guarding  the  community  from  the  disastrous  effects  of 
frequent  and  extraordinary  contractions,  and  expansions  to  be 
followed  by  contractions,  of  the  currency,  an  opinion  has  been 
gradually  gaining  ground  in  Great  Britain  of  the  expediency 
of  there  being  but  a  single  issuer  of  paper  money, — of  paper 
money,  I  mean,  exclusive  of  the  ordinary  mercantile  paper 
which  every  where  constitutes  to  a  certain  degree  the 
medium  of  exchange.  A  writer  in  one  of  the  leading  journals 
of  that  country  has  suggested  that  the  single  issuer  should  there 
be  the  Bank  of  England,  acting  under  the  inspection  of  the 
government ;  a  commissioner  appointed  by  which  to  have  a 
veto  on  every  additional  issue  of  bank  notes  that  may  at  any 
time  be  proposed  by  the  directors.  Such  an  arrangement 
amounts  very  nearly  to  the  conferring  of  the  exclusive  power 
of  issuing  paper  money  on  the  government  itself.  And  I  must 
confess  that  I  see  no  sufficient  reason  why  this  power  should 


POLITICAL    ECONOMY.  201 

not  be  exercised  by  it  directly,  without  the  intervention  of  a 
bank. 

When  we  reflect  upon  the  magnitude  of  the  opposition  to  a 
national  bank  in  our  own  country,  even  when  no  peculiar 
privileges  or  power  were  proposed  to  be  conferred  upon  it 
than  what  must  necessarily  result  from  the  large  amount  of 
its  capital,  the  utter  impracticability  may  be  assumed  of 
organising  among  ourselves  any  institution  of  the  kind  in  order 
to  constitute  it  the  sole  issuer  of  our  paper  currency.  If  a 
single  issuer  shall  ever  exist  here,  it  can  only  be  the  govern- 
ment of  the  Union, — and  the  government  of  the  Union,  too,  in 
its  fiscal  capacity.  A  national  bank  under  the  control  of  the 
government,  in  which  the  question  of  lending  or  not  lending 
to  any  individual  is  to  be  determined  by  officers  appointed  by 
it,  I  need  scarcely  say  would  be  more  objectionable  than  a 
similar  institution  where  this  was  to  be  decided  at  the  discre- 
tion of  men  of  the  highest  respectability,  appointed  for  the 
purpose  by  the  stockholders. 

The  proposed  object  can,  in  my  opinion,  be  accomplished 
by  simply  carrying  out  the  scheme  of  what  has  been  styled 
the  sub-treasury  system, — a  scheme  brought  forward,  in  the 
first  instance,  for  the  purpose  of  removing  for  the  future  the 
public  funds  from  the  keeping  of  the  banks,  and  from  the 
accidents  to  which  the  banks  have  been  shewn  by  experience 
to  be  subject.  Let  the  secretary  of  the  treasury  be  autho- 
rised to  issue  treasury  notes,  or  drafts  upon  the  treasury,  on 
which  no  interest  shall  he  paid,  in  payment  of  the  public 
creditor,  whenever  they  shall  be  preferred  by  the  latter  to 
specie ;  and  on  the  other  hand,  let  them  be  received  in  pay- 
ment for  taxes,  when  the  tax  payer  shall  prefer  making 
his  payments  in  this  manner  rather  than  paying  in  specie.  It 
will  be  observed  that  all  the  discretion  which  is  here  allowed 
rests  with  the  public  creditor  or  debtor,  and  in  no  respect  with 
the  government ;  whose  patronage  cannot  thereby  be  aug- 
mented, unless  to  the  extent  imphed  in  the  appointment  of  a 


202  THE  PRINCIPLES  OF 

very  few  officers  in  addition  to  those  already  employed  in  the 
treasury  department.  This  additional  patronage,  besides, 
must  surely  be  regarded  as  altogether  insignificant  in  com- 
parison with  that  which  the  government  may  be  conceived  to 
exercise  under  any  supposable  connexion  of  it  with  a  number 
of  deposits  banks. 

Were  there  no  banks  of  issue  in  existence,  and  therefore  no 
such  things  as  bank  notes,  it  is  easy  to  understand  how  the 
treasury  notes  in  question  would  enter  into  the  circulation,  and 
what  would  determine  the  extent  in  which  they  would  do  so. 
Receivable  as  they  would  be  for  taxes,  and  not  bearing  any 
interest,  there  can  be  no  doubt  that,  in  the  absence  of  bank 
notes,  their  superior  convenience  to  specie  for  remittance  to  a 
distance,  as  well  as  for  making  considerable  payments,  would 
give  them  a  preference  with  the  merchant,  and  that,  for  this 
reason,  they  would  in  certain  parts  of  the  country  command 
a  premium  in  the  market.  So  long  as  this  state  of  things  con- 
tinued, while  specie  would  be  flowing  into  the  public  treasury, 
the  treasury  notes  would  be  passing  into  the  circulation.  At 
length,  however,  as  much  of  this  paper  money  as  was  required 
for  the  convenience  of  the  merchants  will  have  been  issued  ; 
when,  if  more  of  it  be  issued,  it  will  only  be  to  be  speedily 
returned  by  the  tax  payers. 

Next,  the  limit  of  the  government  issues  having  been  reached, 
as  determined  by  the  convenience  of  the  mercantile  commu- 
nity, suppose  a  demand  for  specie  to  occur,  and  let  us  see 
what  will  happen.  People  generally  will  choose  to  pay  their 
taxes  in  treasury  notes  rather  than  in  specie  ;  and  the  credi- 
tors of  the  government  will  ask  for  specie  instead  of  treasury 
notes.  The  circulation  of  these  last  will,  in  consequence, 
become  contracted  ;  the  whole  circulating  medium  being  at 
the  same  time  diminished  precisely  to  the  extent  of  the  extra- 
ordinary demand  for  specie.  Every  thing,  also,  will  take  place 
[n  a  contrary  direction,  on  the  supposition  of  a  less  demand 
for  specie   than   usual.     We  shall  then,  manifestly,  have  a 


POLITICAL    ECONOMr.  203 

circulating  medium,  susceptible  of  neither  more  nor  less  of 
expansion  and  contraction  than  one  that  is  composed  exclu- 
sively of  the  precious  metals ;  and  which  has  this  advantage 
over  one  so  composed,  that  it  is  more  convenient  for  making 
payments  of  a  large  amount,  and  for  remitting  money  to 
distant  places. 

For  these  advantages  in  our  system  of  paper  money,  we 
shall  have  sacrificed  nearly  all  those  which  arise  from  the 
dispensing  altogether  with  the  use  of  the  precious  metals  as 
money,  to  an  amount  equal  to  the  value  represented  by  the 
paper  substituted  instead  of  them  in  the  circulation.  This 
will  be  the  case  because  the  specie  withdrawn  is  retained  in 
the  coffers  of  the  government,  and  not,  as  is  usually  the  case 
on  the  issue  of  paper  money,  diffused  throughout  the  commer- 
cial world.  The  value  of  the  sacrifice  thus  made  may  be 
approximately  estimated,  as  has  before  been  stated,  by  the  net 
profits  of  the  banks  of  the  country  above  the  ordinary  interest 
of  money, — a  sacrifice  which,  I  am  disposed  to  think,  will  be 
regarded  by  the  reader  to  be  of  less  account  just  in  proportion 
as  he  reflects  upon  the  subject. 

But  it  is  not  at  all  indispensable  that  the  whole  of  the  specie 
received  by  the  government  should  be  retained  in  its  posses- 
sion unemployed.  One- half,  or  one-third,  or  any  other  pro- 
portion of  it,  may  be  employed  in  purchasing  its  own 
obhgations,  or,  when  there  is  no  national  debt,  in  purchasing 
the  obligations  of  the  different  states  of  the  union.  The  specie, 
thus  disposed  of,  will  now  take  the  same  course  wdth  specie 
which  is  liberated  from  the  circulation  by  the  issue  of  bank 
paper ;  and  the  advantage  to  the  country  of  such  a  disposi- 
tion of  it  will  be  an  accession  to  the  national  wealth  of  an 
amount  of  commodities  other  than  money,  equal  in  value  with 
that  of  the  specie  whose  use  has  been  dispensed  with,  and 
which,  for  this  reason,  w'ill  cease  to  be  reproduced.  On  the 
introduction  of  the  system  in  question,  it  would  be  expedient 
to  err  in  having  an  unnecessary  reserve  of  specie  in  the  public 


S04  THE    PRINCIPLES    OF 

treasury  in  order  to  guard  effectually  against  the  contingency 
of  the  government  being  obliged  to  stop  specie  payments. 
After  it  had  been  for  some  time  in  operation,  experience 
would  enable  us  to  determine  very  nearly  what  should  be  the 
minimum  amount  of  specie  to  be  r&served.  A  circulating 
medium  like  this  would  have  every  advantage  which  is  pos- 
sessed by  any  that  can  be  furnished  by  the  banks,  and  without 
any  counterbalancing  disadvantage. 

Should  the  plan  of  issuing  it,  as  above  stated,  be  objected  to 
on  account  of  the  first  issues  being  proposed  to  be  made  on  no 
specie  basis  actually  provided  by  the  government,  the  objec- 
tion could  easily  be  got  over  by  so  modifying  the  plan  as  to 
require  the  procuring,  in  the  first  instance,  by  taxation  or 
loan,  of  such  a  specie  basis  as  is  desirable,  previous  to  the 
making  of  any  issues  whatever  of  treasury  notes.  This 
objection,  however,  is  in  my  opinion  of  no  weight.  Even  if 
a  certain  amount  of  these  notes  were  to  be  issued  before  any 
of  the  specie  to  be  received  in  payment  of  taxes  had  been 
actually  paid  into  the  public  treasury,  they  would  have  been 
issued  on  the  credit  of  the  government ;  and  if  the  expend- 
itures annually  authorised  by  Congress  were  invariably  limited 
by  the  estimated  receipts  within  the  year  from  the  different 
sources  of  the  public  revenue,  that  credit  can  scarcely  be  sus- 
ceptible, under  any  circumstances,  of  being  impaired. 

I  have  supposed  only  a  certain  exact  proportion  of  the 
specie  which  may  come  into  the  possession  of  the  govern- 
ment to  be  reserved  by  it  in  order  to  secure  itself  against  a 
suspension,  on  any  emergency,  of  specie  payments.  But 
if  any  one  prefer  the  rule  to  be  that  the  specie  reserved 
should  be  made  to  bear  a  certain  exact  proportion  to  the  trea- 
sury notes  which  shall  have  been  issued,  I  would  cheerfully 
acquiesce  in  this  modification  of  my  plan.  Perhaps,  indeed, 
this  may  be  in  a  slight  degree  the  preferable  arrangement. 

To  omit  any  farther  mention  of  objections  to  it  founded  on 
the  mistaken  notion  of  its  having  a  tendency  to  add  to  the 


POLITICAL  ECONOMY.  205 

patronage  of  the  executive  department  of  the  general  govern- 
ment, I  know  of  no  others  which  can  be  adduced,  with  any 
plausibility,  against  the  expediency  of  its  adoption,  excepting 
such  as  have  reference  to  the  introduction  of  it  in  'place  of 
our  existing  system  of  a  bank  note  circulation,  of  the  benefits 
derived  from  which  so  many  even  of  our  most  intelligent 
citizens  entertain  the  most  exaggerated  opinions,  and  which 
so  many  are  disposed  to  identify,  most  absurdly,  as  I  have 
shewn,  with  the  credit  system, — and  excepting  such  objections, 
too,  as  are  founded  on  its  inconsistency  with  the  existence  at 
any  time  of  a  surplus  revenue. 

How  to  pass  from  our  present  bank  note  circulation  to  the 
one  above  described  will  be  a  subject  of  inquiry  as  we  pro- 
ceed. In  respect  to  the  system  of  credit,  it  may  be  observed 
that,  so  far  from  being  in  the  slightest  degree  impaired  by  the 
abolition  of  banks  of  issue  or  of  circulation,  the  greatest 
obstacle  will  have  been  overcome  to  the  removal  of  all 
restrictions  on  the  lending  of  money ;  and  there  will  then  be 
no  reason  why  every  individual  in  the  community,  who  may 
think  it  to  be  for  his  interests  to  do  so,  might  not  be  permitted 
to  engage  in  the  business  of  hanking,  with  the  exception  alone 
of  issuing  notes  payable  to  the  bearer  on  demand,  just  as  he 
is  now  at  liberty  to  engage  in  any  other  branch  of  business 
without  first  asking  the  consent  of  the  government. 

Objections,  to  the  scheme  of  a  circulating  medium,  of  the 
nature  described  in  the  present  chapter,  which  are  founded  on 
the  accumulation  of  a  surplus  revenue,  and  on  the  consequent 
mass  of  specie  coming  thereby  into  the  possession  of  the 
government,  and  having  to  be  disposed  of  by  it,  need  not  be 
suffered  in  the  least  to  disturb  us.  Not  to  speak  of  a  disposal 
to  be  made  of  the  surplus  revenue  by  the  purchase  of  the 
different  state  obhgations  or  stocks,  or  what  amounts  to  the 
same  thing,  by  lending  to  the  different  states,  I  may  reply 
that,  after  the  experience  we  have  had  of  the  evils  of  which, 
in  more  ways  than  one,  a  surplus  revenue  is  productive, — 

27 


206  THE  PRINCIPLES  OF 

although  some  of  these  could  not  again  recur  if  our  present 
banking  system  were  abolished, — there  ought  to  be  no  ques- 
tion among  us  of  the  propriety  of  reducing  the  public  revenue 
to  the  exigencies  of  the  government,  and  of  thus  preventing  the 
existence  of  any  surplus  in  future.  And  besides  this  being  a 
sufficient  reply  to  the  objections  now  under  consideration, — 
that  the  existence  of  a  surplus  revenue  should  be  in  any 
degree  inconsistent  with  a  fair  experiment  for  supplying  a 
better  currency  to  the  country,  will  be  an  additional  reason 
with  many  for  being  hostile  to  the  accumulation  of  such  a 
revenue. 


CHAPTER  XVIII. 


[    MODE  OP  ABROGATING  THE  EXISTING  BANKING  SYSTEM  OF  THE 

COUNTRY. 

The  remark  can  scarcely  be  repeated  often  enough  that, 
however  beneficial  any  proposed  change  in  the  policy  or 
government  of  a  country  may  be,  it  may  not  unfrequently  be 
productive  of  evils,  on  its  too  sudden  introduction,  which  will 
more  than  compensate  the  good  which  it  is  fitted  eventually 
to  confer.  It  is  from  a  forgetfulness  of  this  important  princi- 
ple that  the  more  zealous,  and,  at  the  same  time,  inconsiderate 
portion,  of  the  friends  of  political  improvement,  are  occasion- 
ally ready  to  plunge  into  all  the  miseries  of  a  revolution,  when 
the  object  in  view  could  be  much  more  effectually,  and  more 
speedily  too,  attained  by  the  exercise  of  argument  instead  of 
violence.  Those  friends  of  improvement  to  whom  I  have 
been  adverting  are  also  apt  to  forget  that  it  is  seldom  a  change 
of  any  kind,  in  the  political  or  social  relations  of  society,  can 


POLITICAL  KCONOMir.  207 

be  beneficially  carried  into  execution,  before  public  opinion,  or 
at  least  that  of  a  majority  of  the  individuals  who  are  chiefly 
concerned,  can  be  induced  to  declare  decidedly  in  its  favour. 
And  there  is,  besides,  another  reason  which  should  always 
operate,  with  the  intelligent  and  philanthropic  portion  of  the 
community,  to  check  every  disposition  on  their  part  to  disturb 
too  rapidly  the  subsisting  condition  of  things  around  them ; — 
I  mean  the  very  natural  tendency  of  the  minds  of  most  men 
to  confound  the  immediate  with  the  ultimate  effects  resulting 
from  the  action  of  any  cause.  By  advancing  without  suffi- 
cient caution,  even  in  the  right  direction,  the  "  evils  of  change" 
may,  quite  possibly,  be  of  such  magnitude,  and  endure  so 
long,  as,  in  consequence  of  this  tendency,  to  generate  a  feeling 
in  the  community  adverse  to  the  most  desirable  alterations  in 
government  or  policy,  and  sometimes  to  constitute  a  pretext, 
if  not  a  real  ground,  for  a  reaction  in  a  direction  opposite  to 
the  true  one.  On  the  contrary,  let  any  one  only  appreciate 
and  be  guided  by  the  considerations  which  have  been  exhibited 
for  not  changing  rashly  the  established  order  of  society,  and 
though  he  should  be  an  extreme  "radical"  in  his  poUtical 
opinions, — if,  indeed,  this  epithet  may  not  be  regarded  as  mis- 
applied to  such  a  person, — he  might,  notwithstanding,  be  more 
of  a  "  conservative"  of  every  thing  truly  deserving  of  con- 
servation, than  are  those  rigid  conservatives,  so  called,  who 
exclaim  vehemently  against  every  proposed  abrogation  of 
abuses,  however  flagrant  these  may  be,  as  an  act  of  treason 
to  the  public  welfare.  Such  men  are  often  the  most  efficient 
revolutionists.  They  are  to  be  found  constantly  occupied  in 
revolting  the  feehngs  of  the  people  among  whom  they  live, 
and  in  thus  diffusing  a  more  general  spirit  of  opposition  to  all 
existing  institutions. 

Bearing  in  mind  the  observations  which  have  just  been 
made,  I  observe  that  it  would  not  be  difficult  to  pass  from 
our  existing  banking  system  to  a  purely  metallic  currency,  or 


208  THE  PRINCIPLES  OF 

to  the  monetary  system  which  has  been  recommended  in  the 
preceding  chapter. 

First,  the  legislature  of  each  of  the  states  may  prohibit,  at 
the  outset,  the  circulation,  after  a  certain  date,  of  all  bank 
notes  of  the  lowest  denomination  which  is  actually  permitted 
to  circulate.  It  might  then  prohibit,  after  an  interval,  the 
circulation  of  bank  notes  of  the  next  denomination  above  the 
lowest.  And  so  it  might  go  on,  until  the  occupation  of  the 
banks,  as  banks  of  circulation,  was  wholly  taken  from  them ; 
the  whole  process  being  extended  through  such  a  period  as  to 
prevent  the  community  from  being  subjected  to  any  extraor- 
dinary inconvenience,  and  to  avoid  infringing  upon  any  rights 
which  the  banks  may  possess  under  their  existing  charters. 

Secondly,  the  legislatures  of  the  states,  while  they  shall 
refuse  to  incorporate  any  new  banks,  may  also  refuse  to  renew 
the  charters,  as  they  expire,  of  those  already  existing ;  or, 
where  they  expire  in  too  rapid  succession,  they  might  be 
renewed  for  a  suitable  period  only,  the  capital  of  each  bank 
being,  at  the  same  time,  reduced  in  amount.  Every  precau- 
tion, too,  should  be  taken  against  the  over-issues  of  those 
banks  which  shall  be  the  last  to  exist.  For  in  the  process  of 
reduction,  the  banking  capital  of  the  country, — especially  if 
the  treasury  notes  in  circulation  should  be  only  of  the  higher 
denominations,  for  which,  however,  there  is  not  the  least 
necessity, — may  be  so  small  in  comparison  to  the  amount  of 
specie  which  circulates,  as  to  tempt  the  banks  to  issue  their 
notes  imprudently,  and  to  incur  the  hazard  of  becoming 
bankrupt.  But  if  the  withdrawal  of  the  smaller  denomina- 
tions of  bank  notes  shall  be  made  to  keep  pace  with  the 
diminishing  of  the  capital  employed  in  banking,  the  proba- 
bility of  any  thing  of  the  kind  just  mentioned  taking  place 
will  be  little  greater  than  it  is  under  ordinary  circumstances. 

Thirdly,  a  bonus,  say  in  the  form  of  a  per  centage  on  its 
capital,  may  be  exacted  on  the  incorporation  or  re-incorpora- 


POLITICAL  ECONOMY.  209 

tion  of  every  bank ;  and  if  the  profits  of  the  bankers,  over 
and  above  the  per  centage  exacted  by  the  government,  should 
be  only  equal  to  the  ordinary  interest  of  money,  no  motive 
would  exist  for  investing  any  more  capital  in  banking  rather 
than  in  any  other  business.  Hence,  it  is  evident,  the  bonus 
exacted  might  be  so  adjusted,  that  bank  after  bank  should 
cease  its  operations,  and  eventually  none  should  remain.  The 
objection  to  this  mode  of  extinguishing  our  present  banking 
system  is,  that,  in  the  latter  stage  of  the  process,  the  temp- 
tation to  the  banks  would  be  very  great  to  issue  their  notes  so 
extensively  as  to  impair  their  credit,  in  order  that  they  might 
thereby  be  enabled  to  realise  enough  to  yield  to  the  stock- 
holders the  ordinary  returns,  after  providing  for  the  increased 
demands  of  the  government.  This  temptation  may,  indeed, 
be  met  by  extraordinary  precautions  and  penalties,  to  be 
applied  by  the  legislature.  Since,  nevertheless,  it  cannot  but 
be  stronger  than  any  temptations  to  which  the  banks  would 
be  subjected  in  the  mode  just  before  described  of  getting  rid 
of  them,  that  mode  must  be  regarded  as  the  preferable  one  of 
the  two. 

When  the  new  currency  shall  have  been,  thus  gradually, 
substituted  for  the  notes  of  our  present  banks,  it  may  be  men- 
tioned that  the  banks  (of  deposite  and  of  discount)  which  will 
remain,  and  which,  on  the  principles  of  an  unrestricted  com- 
petition will  be  multiplied  in  number  according  to  the  wants 
of  the  community,  will,  in  addition  to  the  peculiarity  of  their 
issuing  no  paper  money  of  their  own,  transact  the  deposite 
part  of  their  business  differently  from  what  is  now  universally 
the  case  in  the  United  States.  Owing  to  the  monopoly  of 
privileges  enjoyed  by  the  banking  institutions  of  the  country, 
none  of  them  find  it  necessary,  for  obtaining  the  deposites  of 
individuals,  to  pay  them  any  interest  for  their  money.  But 
under  a  system  of  free  trade  in  banking, — as  banking  would 
then  be  understood, — while  the  bankers  will  be  charging  the 
market  rate  of  interest  for  the  money  which  they  lend  out  to 


210  THE  PRINCIPLES  OP 

Others,  they  will,  very  naturally,  be  willing  to  borrow  money 
from  those  who  may  have  it  to  lend,  or,  what  is  the  same 
thing,  to  receive  the  deposites  of  individuals,  at  a  somewhat 
lower  rate  of  interest.  This  is,  in  fact,  the  general  practice 
throughout  the  continent  of  Europe. 

•If  any  of  my  readers  have  still  doubts  concerning  the 
expediency  of  a  free  trade  in  banking,  and  in  money  generally, 
when  the  banks  shall  have  been  deprived  of  the  privilege  of 
issuing  promissory  notes  payable  to  the  hearer  of  them  on 
demand,  his  doubts,  I  hope,  will  be^entirely  dissipated  before 
he  shall  have  finished  the  perusal  of  the  present  hook. 

I  have  said  that  it  would  not  be  difficult  to  pass  from  our  exist- 
ing banking  system  to  a  purely  metallic  currency,  or  to  one 
composed  in  part  of  the  precious  metals,  and  in  part  of  treasury 
notes  or  drafts.  The  difficulty  alluded  to  was  of  a  politico- 
economical  description.  Political  difficulties,  however,  inter- 
vene, of  a  nature,  practically  speaking,  altogether  insuperable 
without  an  aHeration  of  the  constitution  of  the  United  States.  No 
one  of  the  states  can  be  expected  to  abolish  the  existing  banking 
system,  or  even  to  take  many  steps  in  prohibiting  the  issue  of 
bank  notes  of  the  lower  denominations,  so  long  as  the  same 
measures  are  not  adopted  contemporaneously  by  the  other, 
and  especially  by  the  neighbouring  states.  Though  New 
York,  for  example,  were  to  act  in  the  manner  suggested,  the 
paper  money  of  New  Jersey  or  Connecticut  might  circulate 
extensively  in  the  former  state,  in  the  place  of  the  bank  notes 
excluded  ;  and  the  intended  effect  might,  in  consequence,  only 
very  partially  ensue.  But  this  is  not  all.  The  profits  of  banking, 
beyond  the  ordinary  returns  to  the  capital,  properly  so  called, 
of  the  banks  which  operate  within  its  bounds,  will  be  transferred 
by  the  state  of  New  York  to  those  of  Connecticut  and  New 
Jersey,  without  any  advantage  being  derived  by  it  in' return, 
— with  the  disadvantage,  indeed,  of  its  possessing  a  less 
secure  currency  than  it  had  before ; — less  secure  because  such 
a  currency  circulates  at  a  more  remote  distance  from  the 


POLITICAL  EC0N03IY.  211 

source  whence  it  is  issued,  and  is  therefore  Hable  to  be  issued 
more  abundantly  than  its  specie  basis  will  justify  ;  and  less 
secure,  too,  because  it  will  be  more  subject  to  being  counter- 
feited than  a  paper  money  which  is  payable  nearer  home. 

The  obvious  and  the  only  remedy,  for  the  difficulties  just 
considered,  lies  in  an  amendment  of  the  constitution,  which 
shall  take  from  the  states  the  power  of  incorporating  banks  of 
circulation, — and  which,  in  my  opinion,  ought  equally  to  pro- 
hibit the  issuing,  by  individuals  or  companies  of  individuals,  of 
a  paper  currency,  or,  in  other  words,  of  promissory  notes 
made  payable  to  the  hearer  in  specie  on  demand. 


CHAPTER  XIX. 

SUSPENSION  OF  SPECIE  PAYMENTS  BY  THE  BANKS. 

In  discussing  the  subject  of  banking,  I  have  supposed  the 
banks  to  be  held  strictly  to  the  obligation  of  paying  specie  for 
their  notes  on  demand.  But  such  has  not  always  been  the 
case.  As  well  in  Great  Britain  as  in  the  Cnited  States,  a 
suspension  of  specie  payments  on  their  part  has  occurred,  and 
has  continued  for  a  considerable  time  ; — in  the  former  country, 
by  means  of  an  act  of  pariiament,  for  so  long  a  period  as  from 
1797  to  1822;  and  in  the  latter,  from  1814  to  1817,  without 
the  direct  interposition,  for  the  purpose,  of  the  legislature, — 
which  had,  indeed,  no  constitutional  authority  to  loosen  the 
obligations  of  creditors  to  their  debtors,  but  yet  as  a  conse- 
quence, in  a  considerable  degree,  of  the  measures  adopted  by 
it  in  a  time  of  war.* 

*  This  was  written  before  the  suspension  of  specie  payments  by  our  banks  in 
May  of  the  last  year. 


212  THE  PRINCIPLES  OF 

Before  the  first  occurrence  of  such  a  suspension  of  specie  pay- 
ments, an  impression  prevailed  very  generally,  even  among  that 
portion  of  the  community  who  might  be  thought  to  be  the  most 
competent  judges  of  the  matter,  that  the  credit  of  bank  notes, 
if  not  entirely  prostrated  by  such  a  measure,  would  be  exceed- 
ingly depreciated  by  it.  On  the  contrary  however,  the  notes 
of  the  Bank  of  England  continued  for  some  time  to  have  a 
market  value,  when  compared  with  gold  and  silver,  not  very 
different  from  their  former  and  professed  value.  An  immediate 
inquiry  into  the  causes  of  this  extraordinary  phenomenon  very 
naturally  took  place ;  and  not  only  were  those  causes  satis- 
factorily traced  and  explained,  but  the  science  of  money,  as 
of  political  economy  in  general,  then  received  a  renewed 
impulse. 

Those  of  my  readers  who  have  made  themselves  masters 
of  the  preceding  chapters  of  this  book  will  find  no  difficulty  in 
comprehending  how  it  is  that,  when  the  banks  refuse  to  pay 
specie  for  their  notes,  these  may,  notwithstanding,  continue  to 
circulate,  and  to  perform  all  the  functions  of  money,  without 
their  value  being  in  any  remarkable  degree,  and  indeed  with- 
out their  value  being  in  any  the  sHghtest  degree,  injuriously 
affected.  To  make  this  quite  apparent,  it  will  suffice  for  me 
to  repeat,  that,  from  the  very  nature  of  banking,  the  immediate 
payment  in  specie  of  all  the  bank  notes  in  circulation,  on  being 
presented  by  their  holders  for  the  purpose,  would  be  an 
impossibility  ;  and  that  they  are,  in  despite  of  this  circumstance, 
regarded  as  equivalent  to  specie,  and  as,  generally  speaking, 
a  more  desirable  circulating  medium  than  specie.  It  will  be 
recollected  that  their  credit,  in  reality,  rests  on  the  whole 
amount  of  the  'property  supposed  to  be  owned  by  the  parties 
who  issue  them,  as  also  on  the  comparative  rapidity  with 
which  the  value  of  that  property  can  be  realised  in  money,  and 
a  speedy  redemption  of  the  notes  by  this  means  secured. 
This  last  condition  too,  it  is  evident,  may  be  overlooked,  pro- 
vided the  former  exist  to  a  sufficient  extent,  and  provided, 


POLITICAL    ECONOMY.  213 

moreover,  there  is  no  exception  to  the  general  non-payment, 
by  the  banks  of  a  country,  of  specie  for  their  notes.  The 
superior  convenience  of  bank  notes  will,  in  general,  secure 
their  continued  circulation,  v\^ithout  their  depreciation  in  value, 
until  they  are  issued  so  abundantly  as  to  expel  all  the  specie 
previously  circulating. 

The  suspension'  of  specie  payments  will,  however,  take  from 
the  banks  every  motive,  short  of  an  apprehension  of  impairing 
the  confidence  of  the  community  in  their  stability,  to  limit 
their  issues  of  paper  money.  'The  checks  too,  which  are 
administered  by  them  to  one  another,  will  be  almost  entirely 
removed, — founded  chiefly,  as  those  checks  were  shewn  to  be, 
on  the  convertibiUty  into  specie  of  the  notes  of  each  bank. 
As  a  consequence,  the  country  w^ill  be  flooded,  and  unequally 
so,  with  paper  money.  And  notwithstanding  the  possibility, 
above  exhibited,  of  bank  notes  not  depreciating  after  they 
have  ceased  to  be  convertible  into  specie,  they  will  infallibly, 
sooner  or  later,  in  fact  sufier  depreciation,  unless  some  other 
checks  to  their  being  unduly  issued  be  applied,  in  place  of  those 
which  have  ceased  to  operate. 

On  account  of  the  existence  in  Great  Britain  (through  the 
influence  of  the  government  on  the  Bank  of  England,  and,  in 
its  turn,  of  the  bank  of  England  on  the  country  bankers)  of 
other  checks  to  the  extravagant  issues  of  paper  money,  in  a 
degree  considerably  greater  than  in  the  United  States, — at  the 
periods  of  the  respective  suspensions  of  specie  payments  in 
the  two  countries, — the  depreciation  of  the  bank  note  currency 
at  no  time  extended  as  far  in  the  former  country  as  it,  in  most 
instances,  did  in  the  latter. 

By  the  depreciation  of  paper  money,  it  has  been  intended  to 
denote  its  depreciation  below  its  nominal  value  in  specie.  But 
here  we  may  be  reminded  of  the  possibility  of  specie,  or  what 
amounts  to  the  same  thing,  of  bullion,  appreciating  in  value ; 
and  that  the  depreciation  of  the- paper  money  may  therefore 
be,  either  wholly,  or  in  part,  merely  apparent.     A  case  can 

28 


214  THE  PRINCIPLES  OF 

easily  be  imagined  of  a  simultaneous  change  in  opposite 
directions  in  the  value  of  the  inconvertible  paper  money,  and 
in  that  of  gold  and  silver.  An  extraordinary  enhancement 
of  the  value  of  these  metals  may  have  taken  place  on  the 
failure  of  their  supply  from  "the  more  fertile  mines,  in  conse- 
quence of  the  long  continuance  of  civil  commotions  in  the 
region  where  these  mines  are  situated,  as  was  the  fact  in 
Mexico  and  in  South  America,  during  a  considerable  period 
in  the  present  century ; — or  it  may  for  a  certain  time  be 
owing,  and  this  in  no  slight  degree,  to  the  breaking  out  of  an 
extensive  war  among  the  principal  nations  of  the  world.  The 
effect  of  its  occurrence  on  an  inconvertible  paper  currency  will, 
of  course,  be  to  make  that  currency  depreciate  in  value  when 
compared  with  the  value  of  bullion.  And  should  the  banks, 
in  this  state  of  things,  issue  an  unusual  quantity  of  their  notes, 
there  will  also  be  a  real  depreciation  of  them.  It  must, 
however,  be  quite  obvious  that  the  possibility  of  the  deprecia- 
tion being  real  only  in  part  cannot  affect  the  correctness 
of  the  conclusions  which  have  been  deduced,  as  to  the 
tendency  of  all  inconvertible  paper  money  to  be  issued  in 
excess. 

As  the  banks  of  a  country  increase  their  circulation,  will 
their  gains  be  likewise  increased.  When,  therefore,  the  check 
of  being  obliged  to  pay  specie  for  their  notes  is  once  removed, 
there  will  be  no  desire  on  their  part  to  have  it  replaced,  and 
no  efforts  will  be  made  by  them  voluntarily  to  resume  specie 
payments.  To  bring  about  this  measure,  they  must  be 
operated  upon  from  without.  The  only  forces,  too,  which 
can  be  effectually  invoked  for  this  purpose  are  the  force  of 
public  opinion  and  that  of  the  legislature  ;  and  the  former  of 
these  merely  on  account  of  its  influence  on  the  action  of  the 
latter.  A  remote  expectation  or  apprehension  of  what  the 
legislature  may  possibly  do  to  their  prejudice  will  scarcely 
accomplish  more  with  the  banks  than  to  induce  them  not  to 
carry  their  expansions  beyond  a  certain  amount, — an  amount 


POLITICAL  ECONOMY.  215 

already  much  too  large.  In  order  to  conifel  them  to  contract 
then'  issues  and  to  resume  specie  payments,  the  legislative 
bodies,  whose  creatures  they  are,  will,  in  most  cases  of  the 
kind,  find  it  necessary  to  pass  some  act  imposing  a  pecuniary 
penalty  upon  them,  or  declaring  their  charters  forfeited,  in 
the  event  of  their  not  resuming  specie  payments  by  a  certain 
day,  and^of  their  not  thereafter  continuing  uninterruptedly  to 
make  payment  of  their  notes  in  specie.  It  is  the  province,  I 
may  add,  of  our  different  state  legislatures,  acting  separately 
or  in  concert,  to  control  the  circulation  of  the  paper  money 
which  they  have  authorised  ;  and  it  will  be  time  enough  for 
the  community  to  look  to  the  Congress  of  the  United  States, 
rather  than  to  them,  for  bringing  about  a  return  by  the  banks 
to  a  payment  of  their  notes  in  specie,  after  payment  of  their 
notes  has  for  a  while  failed  to  be  made,  when  the  states  shall 
have  resigned  the  power  they  have  hitherto  exercised  of 
incorporating  banks  of  circulation,  and  the  government  of  the 
Union  shall  have  assumed  to  itself  the  regulation  of  the  cur- 
rency of  the  whole  country,  agreeably  to  the  spirit  and  intent 
of  our  existing  Constitution. 

Some  individuals  who  have  entertained  exaggerated  notions 
of  the  advantages  derived  to  a  community  from  the  substitution 
of  a  paper  for  a  metallic  currency,  and  \vho  have  been  desirous 
of  still  farther  multiplying  those  advantages,  by  dispensing 
with  the  necessity  of  retaining  any  specie  in  the  banks  for  the 
purpose  of  redeeming  their  notes,  have  occasionally  pro- 
posed various  plans  for  carrying  on  the  business  of  banking, 
so  as  to  maintain  a  bank  note  circulation  professedly  not 
subject  to  be  redeemed  with  specie.  A  favourite  plan  has 
been  to  issue  notes  representing  property  in  land,  and  to  limit 
at  the  same  time  the  notes  issued  to  a  certain  amount,  when 
compared  with  the  property  represented  by  them.  There  are 
several  objections  to  the  execution  of  every  such  scheme. 
The  most  important  one, — one,  also,  which  may  be  regarded 


216  THE  PRINCIPLES  OP 

as  of  itself  decisive  against  it, — is  tiie  practical  difficulty  of 
maintaining  the  limit  prescribed  to  the  amount  of  the  issues 
to  be  made.  Should  it  be  argued  that  laws  may  be  passed, 
with  sufficient  penalties  annexed  to  them,  to  prevent  the 
parties  who  shall  be  authorised  to  issue  paper  money,  from 
going  beyond  the  prescribed  Umit,  the  reply  is  that  the  danger 
to  be  apprehended  exists  chiefly  in  a  very  different  quarter.  It 
is  the  government,  whether  of  the  states  or  of  the  whole  Union, 
as  the  case  may  be,  which  is  likely  to  be  the  great  trespasser. 
Banking  privileges,  of  the  kind  now  under  consideration,  will 
be  asked  of  it  without  end,  and  inducements  for  granting 
them  will  be  held  out  which  it  wall  be  scarcely  able  to  resist ; 
and  the  circulating  medium  will  thus  be  continually  extended, 
and  a  given  portion  of  it,  therefore,  more  and  more  depre- 
ciated in  value.  This  will  happen,  too,  almost  as  fast  as  if 
the  government  had  exercised  the  power  of  emitting  bills  of 
credit  without  any  limitation  as  to  quantity. 

To  what  has  been  mentioned  concerning  a  circulating 
medium  not  based  on  the  precious  metals,  and  in  no  wise 
representing  them,  I  may  add  that,  if  its  introduction  were 
practicable,  as  well  as  in  other  respects  to  be  desired,  there  is 
one  advantage  those  metals  would  have  over  it, — an  advan- 
tage that  would,  of  course,  be  partaken  of  by  every  currency 
representing  them, — which  might,  notwithstanding,  turn  the 
scale  in  their  favour.  Perhaps  of  all  commodities,  gold  and 
silver  are  those  whose  value  is  the  least  subject  to  variation 
during  comparatively  short  periods  of  time,  such  as  a  few 
years.  This  circumstance  fits  them,  in  a  peculiar  manner,  to 
become  the  measure  of  value  in  the  case  of  almost  all  con- 
tracts. And  indeed,  even  though  the  circulating  medium 
should  be  constituted  wholly  of  paper  money  having  no  direct 
reference  to  either  gold  or  silver,  it  would  be  expedient,  with 
a  view  to  guard  as  much  as  possible  against  the  necessity  of 
discharging  the  contracts  which  have  been  entered  into  by 


POLITICAL  ECONOMY.  217 

the  payment  of  a  less  or  of  a  greater  value  than  that  bargained 
for,  to  specify  particularly  that  they  should  be  discharged  with 
specie  or  bullion. 


CHAPTER  XX. 

DEBASEMENT  OF  THE  CURRENCY. 

It  is  not  only  by  their  action  on  the  banking  system  of  a 
country  that  the  rulers  of  nations  have  interfered  with  the 
medium  for  exchanging  every  thing  else.  They  have,  not 
unfrequently,  exercised  their  prerogative  of  coining  money, 
so  as  to  free  themselves  from  the  obligation  of  discharging 
the  full  amount  of  the  debts  incurred  by  them,  or  by  their 
predecessors  in  the  government,  for  professedly  public  or 
national  purposes.  The  name  before  applied  to  a  piece  of 
money,  containing  a  certain  quantity  of  gold  or  silver,  has 
been  subsequently  applied  by  them  to  one  containing  only  a 
half,  a  tenth,  or  even  a  less  proportion  of  those  metals. 

That  it  w^ould  be  a  fraud  on  the  part  of  the  government  to 
pay  its  creditors,  and  to  enable  debtors  generally  to  pay  their 
creditors,  in  coins  which  have  been  debased  in  the  manner 
described,  must  be  sufficiently  obvious  to  the  reader  to  require 
no  illustration. 

Latterly,  however,  governments  have  preferred,  when 
pressed  by  financial  difficulties,  and  when  they  have  not 
been  over-scrupulous  to  avoid  any  hazard  of  violating  the 
rights  of  the  national  creditor,  to  issue  hills  of  credit,  or,  in 
other  words,  to  pay  for  the  services  of  the  persons  in  their 
employ,  as  well  as  for  the  purchases  they  may  require  to  be 
made,  by  promises  in  writing  to  pay  a  certain  amount  of 
money  at  some  future  day.     Bills  of  this  description, — call 


218  THE  PRINCIPLES    OF 

them  treasury  notes,  assignats,  or  by  whatsoever  other  name, 
— are  necessarily  liable  to  be  issued  to  the  same,  or  even  a 
still  greater  excess,  than  is  an  inconvertible  hank  paper- 
money.  This  last  must,  at  least,  be  the  case  if  the  banks  be 
not  in  a  certain  degree,  or  wholly,  under  the  immediate 
control  or  management  of  the  government.  According  as 
such  bills  of  credit  are  issued  to  an  extent  ever  greater  and 
greater,  they  will  become  more  and  more  depreciated  in 
value ;  and  although  the  government  of  a  country  may,  for  a 
limited  time,  find  in  the  employment  of  them  extraordinary 
resources,  they  will  at  length  be  so  much  depreciated  as  to 
render  it  absolutely  necessary  to  recur  to  taxation  exclusively, 
in  order  to  provide  for  the  public  expenditure.  I  say  to  taxa- 
tion exclusively,  because  it  is  manifest  that  when  a  govern- 
ment, in  the  general  opinion,  is  so  utterly  bankrupt  that  its 
promises  to  pay  are  regarded  as  of  little  or  no  value,  it  will 
certainly  be  altogether  out  of  its  power  to  procure  a  loan 
from  any  quarter  whatever, — at  least  any  but  forced 
loans,  which  is  merely  another  name  for  a  certain  unequal 
species  of  taxation. 


CHAPTER  XXI. 


OJf  THE  INTEREST  OF  MOXEY. 


Besides  affecting  by  their  legislation  the  amount  of  the 
circulating  medium,  governments  have  passed  laws  limiting 
the  interest  to  be  received  for  money  to  a  rate  below  what  it 
would  be,  or  what  it  would  frequently  be,  if  left  to  be  deter- 
mined by  a  free  competition  between  the  lenders  and  the 
borrowers  in  the  market ;  and  they  have  even  forbidden 
altogether  the  lending  of  money  under  certain  circumstances, 


POLITICAL  ECONOMY.  219 

as,  for  example,  has  been  done  by  the  "  restraining  laws"  of 
the  state  of  New  York.  After  what  has  been  said  in  the 
foregoing  pages  concerning  money  and  capital,  I  need  not 
undertake  to  show  that  every  difficulty  thrown  in  the  way  of 
their  transfer  by  loan,  from  one  individual  to  another, 
must  tend  to  retard  the  progress  of  national  wealth,  by 
preventing  them  from  being  employed  as  productively  as 
they  might  otherwise  be. 

.  The  legal  limitation  of  the  interest  of  money  calls  for  some 
remark.  But  it  is  expedient,  in  the  tirst  place,  to  understand 
distinctly  what  the  circumstances  are  which,  independently  of 
the  action  of  the  government,  determine  the  rate  of  interest. 
I  shall,  accordingly,  now  inquire  into  these. 

If  money  were  never  borrowed  excepting  to  be  employed 
productively,  and  if  the  ordinary  profits  of  capital  were  the 
very  same  in  all  the  various  branches  of  industry,  the  interest 
of  money  would,  obviously,  be  determined  by  the  rate  of 
profits.  Were  this  rate,  for  example,  ten  per  cent.,  that  of 
interest  could  not  be,  and  remain,  at  nine.  A  dollar  upon 
every  hundred  dollars  borrowed  by  any  capitalist  would,  in 
that  case,  be  acquired  by  him,  as  it  were  gratuitously,  beyond 
the  compensation  which  he  is  entitled  to  for  his  labour  of 
management,  or  superintendence,  of  the  capital  borrowed  by 
him.  It  is  evident  that  the  borrowers  of  money  will  then 
desire  to  borrow  it  to  a  greater  extent  than  before,  and  that 
others  who  hitherto  may  have  abstained  from  borrowing  will 
compete  with  them  for  loans  in  the  money  market,  until  the 
rate  of  interest  shall  have  advanced  to  ten  per  cent.  And 
had  we,  on  the  contrary,  set  out  with  supposing  the  rate  of 
interest  to  be  higher  than  the  ordinary  rate  of  profits,  less 
money  will  evidently  be  borrowed  than  before,  till  interest 
and  profits  are  again  brought  to  coincide. 

But  there  is  not  one  rate  of  profits, — natural  rate,  of  course, 
is  meant, — in  all  the  various  applications  of  capital.  Which, 
then,  of  the  actual  rates  must  be  taken  as  that  by  which  the 


220  THE  PRINCIPLES  OF 

interest  of  money  is  determined  1  I  would  say  the  higher 
rates;  for  if,  at  any  time,  the  lower  rates  corresponded  with 
the  rate  of  interest,  it  seems  to  me  there  would  be  no  doubt 
that  the  capitalists  who  are  receiving  the  larger  profits  would 
offer  to  borrow  money  to  such  an  amount  as  to  cause  interest 
to  rise.  Be  this,  however,  as  it  may,  it  is  certainly  correct  to 
speak,  in  general  terms,  of  the  interest  of  money  being  deter- 
mined by  the  profits  of  capital ;  and  on  the  other  hand,  when 
we  are  told  what  the  interest  for  money  borrowed  is,  in  a 
particular  period  or  country,  we  shall  have  an  approximate 
measure,  at  least,  of  the  general  rate  of  profits. 

I  need  scarcely  mention  that  I  have  been  taking  for 
granted  the  entire  security  of  property,  as  well  as  the  non- 
interference of  the  government  with  the  right  of  individuals 
to  dispose  of  their  property,  including  money,  as  they  may 
deem  to  be  most  conducive  to  their  own  advantage.  Where 
these  conditions  are  not  fulfilled,  where  the  state  of  society  is 
so  lawless  as  to  subject  t'he  possessor  of  wealth,  and  especially 
of  moveable  wealth,  to  the  depredations  of  his  fellow-men,  or 
where  the  highest  interest  for  the  use  of  money  which  can  be 
lawfully  received  is  lower  than  the  general  rate  of  profits, — 
little  or  no  money  will  be  borrowed,  on  the  supposition  of 
money  being  never  borrowed  except  with  a  view  to  repro- 
duction. 

Moreover,  if  all  payments  of  money  for  commodities 
purchased  were  cash  payments,  the  only  reason  which  I  can 
conceive  for  borrowing  would  be  for  the  purpose  of  specula- 
tion. When  the  prices  of  commodities  are  expected  by  the 
speculators  to  rise,  they  will  desire  to  purchase  more  exten- 
sively than  usual,  and  they  will  make  a  greater  demand  for 
money.  On  the  principles  of  supply  and  demand,  the  interest 
to  be  paid  for  its  use  will,  in  consequence,  be  temporarily 
enhanced.  An  opposite  effect  will  ensue  from  an  expectation 
of  a  fall  of  prices.  These  temporary  effects,  occurring,  as 
they  will  do,  sometimes  in  one,  and  sometimes  in  another,  of 


POLITICAL   ECONOMY.  221 

two  opposite  directions,  can,  very  plainly,  produce  no  change 
in  the  average  or  ordinary  rate  of  interest,  determined,  as 
this  has  been  shewn  to  be,  by  the  general  rate  of  profits. 

A  certain  portion  only  of  the  payments  of  the  community 
is,  however,  made  in  cash ;  which  portion,  too,  is  commonly 
less  in  amount,  according  as  the  community  has  more  of  a 
mercantile  character,  and  according  to  the  degree  in  which 
punctuality  generally,  in  the  discharge  of  pecuniary  obliga- 
tions, is  secured  by  the  laws,  or  by  the  influence  of  public 
opinion.  The  demand  for  money,  in  order  to  discharge  such 
obligations,  may  cause  the  interest  paid  for  its  use  to  rise,  at 
times,  considerably  above  the  ordinary  rate;  and  if  the 
government  interfere  in  any  way  with  the  business  of  lending 
money, — either  by  prohibiting  altogether  the  lending  of  it 
under  certain  circumstances,  or  by  the  branding  of  the  taking 
of  interest,  beyond  a  specified  amount,  as  usury,  and  annexing 
to  the  doing  so  the  legal  forfeiture  of  the  loan, — the  interest  of 
money  may  rise  occasionally  to  a  very  exorbitant  height.  It 
must  then  exceed  the  interest  which  would  otherwise  be  paid, 
by  the  amount  of  the  insurance  required  to  cover  the  risk  of 
the  entire  loss  of  the  principal  lent,  and  must,  besides,  com- 
pensate the  lender  for  the  loss  of  social  standing  and  respec- 
tability on  account  of  his  having  violated  the  laws  of  his 
country  and  become  an  usurer.  In  addition  to  this,  it  may 
be  mentioned  here  that,  on  the  occurrence  of  a  scarcity  of 
money,  or  on  a  scarcity  of  it  being  apprehended,  the  interest 
asked  for  the  use  of  it  will  advance  more  rapidly  than  would 
be  the  case  were  an  entire  liberty  to  be  allowed  to  every  one 
to  do  what  he  chose  with  his  own  money  ;  and  after  having, 
in  the  course  of  its  advance,  reached  the  limit  fixed  by  law,  it 
will  be,  obviously,  at  once  enhanced  in  an  extraordinary 
degree.  Hence  the  policy  of  a  repeal  of  the  usury  laws,  and 
of  a  free  trade  in  money,  as  in  respect  of  every  other  commo- 
dity. 

While,  however,  avowing  myself,  in  common  with  every 

29 


222  THE    PRINCIPLES   OF 

other  political  economist,  to  be  hostile  to  all  usury  laws,  I  am 
not  an  advocate  for  their  absolute  repeal,  so  long  as  a  limited 
number  only  of  banking  institutions  exist  in  a  country,  pos- 
sessing peculiar  privileges,  and  capable  of  combining  together 
to  diminish  unexpectedly  the  quantity  of  money  in  circulation. 
The  demand  for  it,  when  compared  with  the  supply,  will  then, 
very  probably,  be  often  such  as  to  cause  the  rate  of  interest 
to  rise  exorbitantly  high,  and  to  enable  the  banks  to  reaUse 
thereby  very  undue  gains,  at  the  expense  of  the  unfortunate 
borrowers.  To  avoid  these  effects  would  indeed  be  easy,  by 
limiting  the  rate  of  interest  which  the  hanks  are  permitted  to 
receive.  But  there  is  another  effect  of  an  injurious  character, 
which,  so  far  from  being  avoided  or  diminished  in  any  degree 
by  this  measure,  will  becon>e  aggravated  in  consequence  of 
it.  The  temptation,  I  mean,  will  be  greater,  on  the  part  of 
the  bank-directors,  to  borrow  money  for  themselves,  or  to 
accommodate  their  friends  with  money  from  the  banks,  in 
order  to  lend  it  out  afterwards  to  individuals  at  a  higher 
interest.  In  this  view  of  the  subject,  I  ought,  perhaps,  to  go 
farther  than  to  say  that  I  am  not  in  favour  of  an  entire  repeal 
of  the  laws  against  usury,  under  our  existing  system  of  bank- 
ing,— and  to  express  my  willingness  to  acquiesce  in  the 
continuance  of  those  laws,  until  the  power  of  regulating  the 
currency  of  the  country,  by  means  of  the  emission  of  paper 
money,  shall  be  taken  from  the  banks,  and  an  unrestricted 
competition  shall  also  be  permitted  in  the  business  of  lending 
money. 

Where  property  is  insecure,  not  only  will  money,  as  has 
been  stated,  be  rarely  borrowed  for  the  purpose  of  being 
employed  productively,  but,  when  borrowed  (which  it  may 
still  be  to  a  certain  extent)  to  enable  the  borrower  to  fulfil  his 
pecuniary  engagements  or  for  purposes  of  speculation,  it  is 
clear  that  the  interest  paid  for  its  use  will  comprehend,  as 
well  the  insurance  against  the  risk  of  losing  the  principal,  as 
the  intercut  properly  so  called, — in  accordance  with  what  was 


POLITICAL  ECONOMY.  223 

shewn  to  be  the  case  when  the  risk  of  loss  arose  from  the 
operation  of  usury  laws. 

An  objection  to  what  has  been  delivered,  concerning  the 
ordinary  interest  of  money,  may  possibly  be  founded  on  the 
very  large  profits  which  are  sometimes  asserted  to  be  the 
ordinary  profits  of  the  capitalist.  While  the  rate  of  interest 
is,  in  a  considerable  portion  of  the  United  States,  so  low,  on 
the  average,  as  six  per  cent,  upon  the  principal  loaned,  we 
hear,  in  the  same  region,  of  ten  or  twelve  per  cent,  profits, 
and,  in  some  instances  of  mercantile  business,  such  as  that 
of  the  apothecary  or  druggist,  of  profits  even  a  good  deal 
higher.  This  discrepance  is,  however,  owing  to  the  occa- 
sional, and  indeed  very  general,  confounding,  under  the 
common  designation  of  profits,  of  the  wages  of  superintend- 
ence and  management  with  the  profits  of  capital  properly  so 
called. 

I  shall  conclude  what  I  have  to  say  on  the  subject  of  money 
by  noticing  an  errour,  not  unfrequently  to  be  met  with  in 
respectable  quarters.  There  are  those  who  think  that  the 
interest  of  money  depends  upon  the  quantity  of  it  in  circula- 
tion. If,  by  thus  expressing  themselves,  they  merely  meant 
that,  other  circumstances  being  the  same,  the  interest  of 
money  would  fall  temporarily  on  the  quantity  of  it  in  circula- 
tion being  augmented,  their  meaning  would  be  open  to  no 
criticism.  Such,  however,  is  not  their  meaning.  They  do  not 
refer  to  any  mere  temporary  changes  in  the  rate  of  interest, 
which  may  be  consequent  upon  a  previous  alteration  in  the 
supply  of  money.  Their  notion  is  that  the  interest  paid  for  its 
use, — the  ordinary  interest, — will  be  high  when  the  average 
quantity  of  money  which  circulates  is  comparatively  small, 
and  low  when  that  average  quantity  is  comparatively  large; 
and  the  reason  given  by  them  why  the  interest  of  money  is 
higher  in  one  country  than  in  another, — in  the  United  States, 
for  instance,  than  in  England,  or  in  England  than  in  Holland, 
— is  that  these  different  countries  are  not  all  equally  wealthy  ; 


224  THE    PRINCIPLES  OF 

which  again  is  the  same,  with  the  persons  now  adverted  to, 
as  that  money  in  those  countries  is  not  equally  abundant.  It 
must  be  evident  to  the  reader  that  this  reasoning  is  unsound, 
as  well  as  inconsistent  with  the  doctrines  which  have  been 
expounded  in  the  preceding  pages.  The  notion  in  question,  I 
may  add,  has  probably  arisen  from  an  observation  of  the 
actual  effect  of  a  diminution  in  the  circulating  medium  in 
producing  a  very  extraordinary,  though  temporary  rise,  in  the 
market  rate  of  interest.  And  had  those  who  entertain  it  only 
been,  besides,  aware  of  the  fact  that  just  in  proportion  as  the 
circulating  medium  is  diminished  in  quantity  it  will  have  its 
value  appreciated,  and  the  contrary  when  its  quantity  is 
augmented, — or  that  it  is  always,  taken  as  a  whole,  of  the 
the  same  precise  value, — they  would  have  perceived  clearly 
that  the  average,  ordinary,  or  as  it  may  be  called,  agreeably 
to  the  analogy  of  prices,  the  natural  interest  of  money,  must 
necessarily  be  independent  altogether  of  the  quantity  of  money 
in  circulation.* 

*  Throughout  the  discussions  in  which  I  have  been  engaged  concerning  money 
and  banking,  I  may  remark  that  I  have  made  no  account  of  one  system  of  man- 
aging the  currency  of  a  country  having  any  advantage  over  another  in  the  facili- 
ties which  it  may  afford  for  regulating  the  domestic  or  foreign  exchanges  of  a 
country.  And  I  have  not  done  so,  because  the  iiest  mode  of  regulating  these  is  for 
the  government,  and  tlie  institutions  created  by  it,  to  leave  them  to  be  adjusted  by 
the  natural  and  unrestri«ted  competition  of  the  dealers  in  exchange.  The  rate  of 
exchange  will  then  be  a  true  index  of  the  state  of  trade,  as  well  as  a  correct  prog- 
nostic of  an  approaching  expansion  or  contraction  of  the  circulating  medium. 


POLITICAL    EC0N03IY.  225 


BOOK  FOURTH. 


ON  THE  PRODUCTIVENESS  IN  THE  SAME  DEGREE  OF  THE 
DIFFERENT  BRANCHES  OF  INDUSTRY;  AND  ON  THE  INTER. 
FERENCE  WITH  THE  NATURAL  DISTRIBUTION  AMONG  THEM 
OF  LABOUR  AND  CAPITAL. 


CHAPTER  I. 

THE  QUESTION   OP  THE  PECULIAR  PRODUCTIVENESS-  OF  AGRICUL- 
TURE EXAMINED. 

The  different  modes  have  been  mentioned  in  which  govern- 
ments have  interfered,  or  might  be  supposed  to  interfere,  with 
the  circulating  medium  of  a  country.  But  this  is  very  far 
from  being  the  only  interference  of  it  with  a  more  natural 
state  of  things,  which  falls  under  the  animadversion  of  the 
political  economist.  Indeed,  the  great  errour  of  the  rulers  of 
mankind  has  hitherto  been,  that  human  happiness  is,  in  a  much 
more  considerable  degree  than  it  really  is,  the  result  of  legis- 
lative regulation.  They  have  almost  entirely  overlooked  the 
tendency  of  society,  acted  upon  continually  by  the  wants  and 
consequent  desires  of  men,  to  adjust  itself  naturally  in  the 
most  advantageous  manner ;  a  truth  which  will  be  per- 
ceived more  and  more  distinctly  by  the  student  of  political 


226  THE  PRINCIPLES  OF 

economy,  as  he  advances  farther  into  his  subject,  and  meditates 
upon  it  more  profoundly. 

One  of  the  most  remarkable  instances, — I  might  have  said 
the  most  remarkable  instance, — of  an  excessive  interference 
with  the  order  of  nature,  on  the  part  of  governments,  is  pre- 
sented to  us  by  their  attempts  to  encourage  one  branch  of 
industry  at  the  expense  of  another, — attempts  growing  out  of 
the  notion  that  the  various  occupations  of  men  are  advanta- 
geous to  a  country  in  very  different  degrees,  and  even, 
occasionally,  that  certain  occupations,  however  profitable  to 
the  individuals  employed,  are  of  no  advantage  whatever  to  the 
community  of  which  they  are  members.  And  it  will  for  the 
most  part  suffice,  for  the  purpose  of  shewing  the  inexpediency 
of  every  such  encouragement,  to  exhibit  the  fallacy  of  the 
arguments  by  which  the  notion  just  mentioned  has  been 
maintained;  for,  independently  of  any  direct  proof  of  the 
superior  advantages  to  be  derived  to  a  country  from  the 
practical  establishment  of  as  great  a  degree  of  liberty  as  is 
possible,  in  the  disposal  of  the  labour  and  capital  of  individuals, 
there  is  surely  no  one  who  will  not  be  ready  to  acquiesce  in 
the  propriety  of  the  natural  distribution  of  these  not  being 
disturbed  by  the  interference  of  government,  provided  no 
sufficient  reason  can  be  shewn  why  it  ought  to  be  thus  dis- 
turbed. 

The  first  argument  whose  fallacy  I  shall  here  undertake  to 
exhibit  is  that  which  attributes  to  agriculture  a  superiority 
over  every  other  department  of  industry,  because,  as  is 
asserted,  agriculture  is  the  only  department  of  industry  which 
is  in  reality  productive.  Those  who  have  reasoned  in  this 
manner  have  been,  chiefly,  the  followers  of  the  celebrated 
Quesnay  in  France,  during  the  middle  and  latter  portion  of  the 
eighteenth  century ;  and  they  founded  upon  it  the  practical 
recommendation,  that  the  only  tax  imposed,  however  great 
might  be  the  pecuniary  exigencies  of  the  government,  should 
be  a  tax  upon  the  land.     It  was  maintained  by  them,  as  also 


POLITICAL   ECONOMY.  227 

by  some  later  advocates  of  their  doctrine,  that,  while  the 
manufacturer  and  the  merchant  were  employed  in  merely 
altering  the  forms  of  matter,  or  in  transporting  it  from  one 
position  in  space  to  another,  the  cultivator  of  the  land  was 
enabled  to  do  something  more  than  this,  through  the  co-opera- 
tion of  the  powers  of  nature,  which  was  truly  the  only 
producer  in  the  case.  After  what  has  been  delivered  in  the 
foregoing  pages  of  the  present  work,  the  absurdity  of  an 
exclusive  co-operation  of  nature  with  man  in  agriculture  will, 
very  probably,  be  evident  to  most  of  my  readers.  Without 
any  reference,  however,  to  what  goes  before,  the  action  alone 
of  the  expansive  force  oi steam,  in  its  numerous  applications  to 
the  manufacturing  arts,  as  well  as  to  navigation,  may  be  cited  as 
sufficient  evidence  that  nature's  bounties  are  not  dispensed 
to  us  fi'om  so  contracted  a  field.  A  very  little  consideration 
will,  indeed,  serve  to  satisfy  us  that  there  is  no  portion  of 
material  wealth  produced  by  man  without  the  aid  of  natural 
agents  extraneous  from  himself  And  this  surely  could  not  be 
imagined  to  be  otherwise,  when  his  very  existence  would  not 
be  for  an  instant  continued,  were  those  agents  to  become  inert 
or  passive  around  him. 

But  some  of  the  writers  who  have  held  the  doctrine  of  the 
exclusive  productiveness  of  agriculture  have  referred  for 
proof  of  it  to  the  fact  that,  in  this  department  of  industry,  not 
only  is  the  wear  and  tear  of  the  capital  applied  continually 
restored,  with  the  ordinary  rate  of  profits,  but  a  rent  besides 
yielded  to  the  landlord ;  which,  it  is  asserted,  is  the  case 
neither  in  manufactures  nor  commerce.  Now  if  this  assertion 
were  true,  which  it  is  not  universally,  it  must  be  obvious  to 
my  readers  that  the  doctrine  under  examination  would,  never- 
theless, not  be  therefore  estabHshed.  All  that  we  might 
possihhj  be  entitled  to  conclude  is,  that  the  various  occupations 
of  men  are  not  equally  productive  of  national  wealth ;  and 
how  far  this  may,  or  may  not,  be  the  case,  I  shall  consider 
directly. 


228  THE  PRINCIPLES   OF 

The  only  mode  in  which  the  circumstance  of  profits  being 
yielded  to  the  capitalist  in  manufactures  and  commerce,  as 
well  as  in  agriculture,  has  been  attempted  to  be  got  over,  by 
those  who  have  attributed  an  exclusive  productiveness  to  the 
latter,  has  been  by  gratuitously  assuming  those  profits  to  be 
so  much  taken  from  what  should  properly  be  regarded  as  the 
compensation  for  the  services  of  the  labourers  employed.  That 
there  is  not  the  least  warrant  for  this  assumption,  is  sufficiently 
manifest  from  the  very  nature  of  capital.  It  being  that  portion 
of  wealth  which  is  saved  from  present  for  future  gratification, 
the  motive  for  such  self-denial  on  the  part  of  the  possessors  of 
wealth  would  be  exceedingly  enfeebled,  and  the  accumulation 
of  wealth  would  be  effectually  checked,  were  the  wages  of 
labour  to  be  at  so  high  a  rate  as  to  absorb  the  whole  of  what 
would  otherwise  be  profits.  Deprived  of  the  powerful  aid  of 
the  capitalist,  the  labourer  would  then,  of  course,  be  left  to  his 
own  resources ;  and  production  could  only  take  place  in  the 
rudest  manner.  The  amount  of  wealth  produced  would, 
besides,  be  comparatively  very  limited ;  —  which,  again, 
implies  that  wages  would  be  reduced  far  below  what  they  are 
in  the  existing  state  of  things,  when  a  certain  share  of  what  is 
actually  produced  is  set  apart  to  compensate  the  possessor  of 
wealth  for  foregoing  the  present  enjoyment  of  it,  and  consent- 
ing to  employ  it  productively. 

Even  though  we  should  grant  the  correctness  of  the  position 
that  the  profits  of  capital  ought  to  be  regarded  properly  as  so 
much  subtracted  from  the  compensation  to  which  the  labourer 
is  entitled,  it  would  not  follow  that  manufactures  or  commerce 
are  wholly  unproductive  of  wealth.  Surely  the  amount  of 
w^ealth  which  has  been  produced  is  never  diminished  by  being 
simply  transferred  from  one  set  of  individuals  to  another. 
With  what  consistency,  then,  can  it  be  maintained  that,  if  the 
profits  of  the  capitalist  were  supposed  by  us,  so  to  speak,  to 
be  truly  his  legitimate  property,  the  fact  of  their  existence 
would  be  adequate  evidence  of  production  having  taken  place, 


POLITICAL   ECONOMy.  229 

— while  we  must,  on  the  contrary,  on  the  discovery  of  those 
profits  being  the  legitimate  property  of  the  labourers  employed, 
hold  that  the  occupation  in  which  these  very  labourers  have 
been  engaged  is  altogether  unproductive  ! 

This  part  of  my  subject  may,  however,  be  now  disposed  of 
by  remarking  that  the  argument  in  favour  of  the  exclusive  pro- 
ductiveness of  agriculture  is  founded  on  the  supposition  of  the 
acceptation  of  the  term  wealth  being  restricted  to  material 
objects  ;  and  of  course,  it  is,  at  once  and  entirely,  set  aside 
by  the  adoption  of  the  more  extended  definition  of  wealth. 

There  are  those  who,  conceding  the  productiveness  of  every 
department  of  industry,  have  yet  maintained  agriculture  to  be 
more  'productive  than  any  other.  This  notion,  too,  was 
founded  on  the  fact,  or  assumed  fact,  that  the  capital  applied 
to  the  land  is  the  only  capital  which,  besides  yielding  the 
ordinary  profits  to  its  owner,  enables  him  to  pay  a  rent  to  the 
landlord  or  proprietor  of  the  soil.  Now,  disregarding  the 
circumstance  of  rent  being  occasionally  paid  in  manufactures 
and  commerce,  I  remark  that  it  would  be  singular  indeed  if 
the  existence  of  rent,  which  was  shewn  to  be  an  effect  of  the 
ever  diminishing  returns  from  the  land,  on  the  successive 
application  to  it  of  equal  portions  of  capital  and  labour,  could 
be  adduced  with  propriety  as  evidence  of  agriculture  being  in 
any  especial  degree  productive.  If  all  the  lazid  of  a  country 
were  suddenly  to  become  equally  fertile  wit/i  that  which  is  at 
present  of  the  best  quality,  and  be  equally  favourably  situated 
with  respect  to  a  market,  no  rent  would  be  any  where  paid 
for  it ;  while,  at  the  same  time,  the  labour  applied  to  the  land 
would  be  acknowledged  by  every  one  to  have  become  more 
productive  than  it  was  before. 

In  consequence  of  rents  being  paid  to  a  greater  extent  in 
agriculture  than  in  either  manufactures  or  commerce, — which 
rents  can  only  be  paid  out  of  the  surplus  remaining,  after  the 
ordinary  rate  of  profits  has  been  retained  by  the  capitalist, — 
it  must  follow  that  a  greater  value  is,  on  the  whole,  actually 

30 


230  THE   PRINCIPLES    OP 

produced  by  means  of  the  application  of  a  given  capital  in  the 
former  department  of  industry  than  in  the  other  two.  This, 
however,  is  no  reason  why  a  preference  should  be  given, 
either  by  individuals  or  by  the  legislature,  to  agriculture  ;  for 
every  additional  capital  applied  to  the  land  will  necessarily 
have  to  be  applied  under  the  most  disadvantageous  circum- 
stances ;  and  any  increase  of  the  rents  paid  to  the  landlords 
which  may  ensue,  on  account  of  more  labour  and  capital 
being  applied  to  the  land  than  would  naturally  be  the  case, 
will  manifestly  be  so  much  gained  by  them  at  the  expense  of 
the  producers  generally. 

It  has  been  shewn  that  there  is  no  ground  for  sup- 
posing nature  to  co-operate  with  man  in  agriculture  alone, 
thus  enabling  him  to  pay  a  rent  to  the  proprietor  of  the  soil. 
I  now  advance  a  step  farther,  and  assert  that  no  reason  can 
be  given  why  nature  should  co-operate  with  man  in  a 
greater  degree  in  agriculture  than  in  manufactures  or  com- 
merce. We  can,  in  no  case,  determine  how  much  of  the 
labour  of  production  is  nature's,  and  how  much  is  man's. 
Nor  is  it  of  any  moment  that  we  should  ;  since,  if  even  the 
determination  of  the  point  in  question  w-ere  practicable,  and 
it  should  be  ascertained  that  the  share  of  the  work  performed 
by  nature  in  one  case  was  proportionally  more  than  what  it 
performs  in  another,  the  only  circumstance  which  ought  to 
have  any  influence  upon  the  distribution  of  the  capital  and 
labour  of  a  country , — having  a  regard  to  the  national  welfare, 
—  would  be  the  comparative  amount  of  advantage  to  be 
reahsed  by  the  capitalists  individually  in  different  occupations. 
They  will  be  distributed  in  the  most  desirable  manner,  when 
this  advantage  is  uniformly  the  same,  that  is,  when  every 
capitalist  is  making  neither  more  nor  less  than  the  ordinary 
profits.  If  a  lower  rate  of  profits  than  this  be  received  in  any 
one  branch  of  industry,  it  is  a  manifest  indication  of  a  greater 
amount  of  production  having  taken  place  in  it  than  is  required 
by  the  comparative  wants  of  the  community ;  and,  on  the 


POLITICAL  ECONOMY.  231 

Other  hand,  if  more  than  the  ordinary  rate  of  profits  be 
received,  it  is  equally  manifest  that  the  wants  of  the  com- 
munity call  for  a  greater  supply  of  the  commodity  pro- 
duced, at  the  expense  of  a  diminished  supply  of  every  thino- 
else. 


CHAPTER  II. 

PRODUCTIVENESS    OF  COMMERCE THE    COMMERCE  OF  SPECULATION 

DEALERS  IN  MONEY. 

Assuming  the  productiveness,  not  only  of  agriculture,  but  of 
every  other  department  of  industry,  I  have  shewn  that  they 
are  all  of  them  equally  productive.  But  some  writers, — the 
Abbe  Raynal  for  instance, — who  have  attributed  the  quality 
of  being  productive  to  manufactures  as  well  as  to  agriculture, 
have  at  the  same  time  denied  it  to  commerce,  w^hich  they 
defined  to  be  merely  the  exchange  of  equivalent  commodities. 
This  definition  is,  evidently,  too  much  restricted.  The  term 
commerce  is  properly  applied  to  the  whole  series  of  acts,  by 
means  of  which  the  products  of  the  farmer  or  manufacturer 
are  transported  from  the  places  of  their  production,  and  dis- 
tributed among  the  individuals  by  whom  they  are  destined  to 
be  consumed ;  and  the  exchanges  which  occur  of  those  pro- 
ducts are  only  particular  acts  in  that  seiies.  In  the  actual 
condition  of  society,  when  labour  is  so  much  subdivided,  these 
exchanges  are  absolutely  necessary  for  effecting  the  distribu- 
tion, among  the  consumers,  of  the  wealth  produced ;  but 
they  are  certainly  not  more  necessary  than  are  any  other  acts 
in  the  series  of  which  mention  has  been  made.     And  it  is  not 


232  THE  PRINCIPLES  OP 

less  absurd  to  define  commerce  to  consist  merely  of  these 
exchanges,  than  it  would  be  to  suppose  the  last,  or  any  other 
link  of  a  chain,  to  constitute  the  whole  of  the  chain,  or  than 
it  would  be,  in  geometry,  to  confound  any  one  point  of  a  line 
with  the  line  itself. 

In  direct  proof  of  the  productivenes  of  commerce,  I  shall 
remind  my  readers  that  exchangeable  value  is  a  criterion  of 
the  existence  of  wealth.  Hence  we  may  infer  that  every 
application  of  man's  labour  which  contributes  to  render  the 
exchangeable  value,  or  price, — I  mean,  of  course,  natural 
price, — of  any  commodity  what  it  actually  is,  must  be  neces- 
sarily productive  of  wealth.  Now  this  happens  in  the  case  of 
commerce,  just  as  it  happens  in  that  of  agriculture,  or  in  that 
of  manufactures.  The  expense  of  transporting  a  commodity 
from  the  producers  to  the  consumers  of  it,  and  of  distributing 
it  among  the  latter,  is  quite  as  much  an  element  of  its  price, 
as  is  any  equal  expense  of  producing  it  while  it  remains  yet  in 
the  hands  of  the  former.  Besides,  on  the  supposition  of  com- 
merce being  in  reality  unproductive,  no  diminished  production 
ought  to  ensue  if  all  transportation  of  commodities  from  place 
to  place  were  to  cease,  and  all  exchanges  of  them  were  to  be 
prohibited.  But  so  far  from  this  being  the  case,  it  is  plain 
that  every  individual  in  the  community  would  be  reduced  to 
the  necessity  of  consuming  only  the  identical  portion  of  wealth 
which  he  himself  produced  ;  and  the  quantity  of  it  produced 
would  be  only  a  very  small  fraction  of  what  it  now  is.  The 
conclusion  forces  itself  upon  us,  that  commerce  is  a  productive 
department  of  industry. 

But  while  commerce  generally  is  acknowledged  by  most 
persons  to  be  productive  of  wealth,  and  as  productive  of  it 
as  is  either  manufactures  or  agricuhure,  we  occasionally  hear 
the  commerce  of  speculation  indiscriminately  condemned  as 
a  useless  application  of  the  labour  and  capital  of  the  commu- 
nity. This  is  a  mistake.  Where  no  artificial  variations  are 
produced  by  the  interference  of  government,  or  of  the  insti- 


POLITICAL   ECONOMY.  233 

tutions  created  by  it,  in  the  natural  rates  of  the  supply  and 
demand  of  commodities,  including  money,  speculation  cannot 
be  carried  to  excess.  In  such  a  state  of  things,  it  will  serve 
to  distribute  over  a  certain  period  the  actual  supply  of  any 
article  in  the  most  advantageous  manner,  without  any  coun- 
terbalancing pubhc  disadvantage.  To  illustrate  my  meaning 
by  an  example :  let  the  crops  of  grain  in  any  year  have  been 
less  abundant  than  usual.  Even  though  the  demand  for  grain 
were  to  continue  unaltered,  this  deficiency  in  the  supply  of  it 
will  cause  its  price  to  rise.  But  the  demand  for  it  will  not 
continue  unaltered.  As  soon  as  it  is  surmised  that  the  quan- 
tity of  grain  in  the  market,  or  about  to  be  brought  into  the 
market,  is  less  than  the  average  supply,  an  extraordinary 
demand  will  be  made  for  it  by  the  speculators.  By  purchasing 
at  present  prices,  and  selling  out,  after  an  interval,  at 
advanced  prices,  they  will  expect  to  make  a  considerable  profit. 
Some  of  them  will  not  fail  to  reaUse  their  expectations,  by 
disposing,  at  the  proper  season,  of  the  stock  of  the  article 
which  they  may  have  in  their  possession.  Others,  however, 
are  frequently  losers,  instead  of  gainers,  by  holding  on  to  it  too 
long.  And  this  is,  more  especially,  apt  to  be  the  case  vvhere 
the  article  in  question  was  purchased  a  short  time  after  it 
became  notoriously  an  object  of  speculation, — on  account  of 
the  well  known  tendency  of  the  price  of  a  thing,  when  it  has 
once  from  any  cause  begun  to  rise,  to  rise  somewhat,  and 
often  a  good  deal,  higher  than  the  point  at  which  it  will  ulti- 
mately remain  stationary.  Now,  from  this  view  of  the 
business  of  speculation,  in  reference  to  grain, — and  the  same 
is  true  in  reference  to  any  other  commodity, — it  must  be 
obvious  that  prices  will  be  rendered  higher  in  the  earlier 
portion  of  the  time  during  which  a  diminished  supply  will 
necessarily  exist,  and,  of  course,  lower  during  the  latter 
portion  of  it.  The  scarcity  will  be  thus  nearly  uniformly 
diffused  over  the  whole  time,  and  will  therefore  be  productive 
of  a  less  amount  of  inconvenience. 


234  THt:  PRINCIPLES  OF 

My  readers  will  easily  understand  that,  if  prices  were  not 
at  once  to  rise  on  the  occurrence,  or  expected  occurrence,  of 
a  considerably  diminished  supply  of  any  article,  and  to  rise 
above  what  they  would  be  but  for  the  interference  of  the  specula- 
tors, so  much  of  the  article  might  be  consumed,  especially  if 
it  be  a  necessary  of  Hfe,  as  to  cause  a  very  high  degree  of 
inconvenience,  or  even  distress,  to  pervade  the  community, 
before  the  supply  could  be  again  renewed. 

Just  in  proportion  as  the  prices  of  commodities  in  general 
are  steady,  it  is  plain  there  will  be  less  room  for  the  occupa- 
tion of  the  speculator,  and  fewer  persons  will  be  disposed  to 
embark  in  it.  Where,  however,  through  frequent  expansions 
and  contractions  of  the  currency  produced  by  a  vicious 
system  of  banking,  or  from  any  other  disturbing  cause,  the 
relations  which  the  supply  of  and  the  demand  for  commodities 
in  general  bear  to  the  supply  of  and  the  demand  for  money 
are  such  as  to  induce  an  unnecessary  fluctuation  of  prices, 
speculation  will  take  place  more  actively,  as  well  as  be 
carried  to  a  vicious  and  injurious  extent.  Then  only  ought  it 
to  be  condemned  and  pronounced  to  be  unproductive  ;  exactly 
as  any  other  branch  of  business  is  to  be  characterised  as 
unproductive  only  when  it  is  carried  on  more  extensively  than 
the  real  wants  of  the  community  require. 

The  speculators  are  not  the  only  class  of  persons  whose 
occupation  has  been  attempted  to  be  rendered  odious,  even 
when  they  are  actually  engaged,  while  promoting  their  own 
interests,  in  conferring  upon  the  community  nothing  but 
unmixed  good.  We  occasionally  hear  the  brokers  also, — I 
mean  the  money  brokers, — denounced  as  a  set  of  men  who 
are  enriching  themselves  at  other  people's  expense.  And  this 
is  founded  on  the  notion  that  they  contribute,  by  the  additional 
demand  which  they  make  for  money,  to  render  it  less  plentiful 
than  it  would  otherwise  be.  That  such  a  notion  is  at  once 
both  superficial  and  absurd,  will  appear  on  the  slightest 
reflection    upon  the  nature  of    the  oflices  performed  by  a 


POLITICAL  ECONOMY.  235 

broker.  He  is  simply  a  middle-man  between  the  buyers  and 
the  sellers.  He  becomes  so,  too,  on  account  of  the  conve- 
nience of  both  these  parties  being  subserved  by  his  intervention. 
If  such  were  not  the  case,  we  may  rest  assured  they  would 
very  soon  prefer  to  deal  directly  with  one  another. 

I  may  add  that  the  prejudices  afloat  in  society  against  the 
dealers  in  money  generally  are  quite  as  absurd  as  those  which 
some  people  retain  against  the  dealers  in  flour,  or  in  any  other 
commodity  of  prime  necessity;  for  money  is,  indeed,  neither 
more  nor  less  than  a  commodity  of  this  description. 


CHAPTER  III. 

OF  COMMERCE  WITH  A  FOREIGIf  COUNTRY DOCTRINE   OF  THE 

BALANCE  OF  TRADE. 

Many  writers  who  have  gone  so  far  as  to  admit  the  general 
truth  of  the  proposition,  that  the  most  advantageous  distribu- 
tion of  the  capital  of  a  country  is  when  every  capitalist  is 
making  neither  more  nor  less  than  the  ordinary  rate  of  profits, 
have  denied  its  application  to /ore/^»  commerce.  They  argue 
that  one  capital  only  is  set  in  motion  or  employed  in  the 
foreign  trade,  while  there  are  two  employed  in  the  home  trade. 
In  the  trade,  for  instance,  between  New  York  and  New 
Orleans,  one  capital  is  employed  in  the  former,  and  another  in 
the  latter  city ;  but,  in  that  between  New  York  and  Liver- 
pool, they  maintain  that  there  is  only  one, — only  one  American 
capital  is  of  course  meant, — that  which  is  employed  in  Liver- 
pool being  an  English  capital.  The  fallacy  of  this  objection 
to  foreign  commerce  wall  readily  appear  if  we  look  at  the 
consequences  which  would  follow,  were  it  to  be  entirely  pro- 
hibited.   Whatever  amount  of  American  capital  might  have 


236  THrf  PRINCIPLES  OF 

been  invested  in  the  Liverpool  trade  will  now  have  to  find  an 
investment  in  the  home  trade,  or  in  other  occupations  at  home. 
There  will,  however,  be  no  creation,  but  only  a  transfer,  of 
capital ;  and  the  two  additional  portions  of  capital  which 
may  come  to  be  employed  in  the  home  trade  will  be  equal  to 
only  one  portion  of  what  before  found  employment  in  the 
foreign  trade.  More  I  need  not  say  in  refutation  of  the  argu- 
ment I  am  examining. 

An  argument  of  considerable  plausibility  has  been  urged 
against  the  employment  of  the  capital  of  a  country  abroad, — 
and,  consequently,  urged  to  a  certain  extent  against  foreign 
commerce,  and  every  other  occupation  having  a  tendency 
to  induce  an  exportation  of  capital, — to  wit,  that  the  labour 
to  which  the  capital  employed  at  home  affords  occupation  is 
that  of  the  inhabitants  of  the  country,  while  the  labour,  on 
the  contrary,  to  which  the  capital  employed  abroad  affords 
occupation,  is,  generally  speaking,  of  a  foreign  description.  I 
may  remark  in  reply  that,  if  savings  were[never  made  from  the 
wages  of  labour,  there  would,  obviously,  be  no  sufficient 
reason,  in  what  has  just  been  said,  for  any  interference  with 
the  natural  distribution  of  capital.  The  smallest  excess  of 
profits  received  on  that  which  is  employed  abroad  will  furnish 
the  means  of  a  more  rapid  augmentation  of  wealth  and  popu- 
lation, and  will  thus  determine,  at  a  period  less  or  more  remote, 
the  actual  existence  of  a  greater  amount  of  wealth,  and  a 
greater  number  of  inhabitants,  than  would  exist  if  all  the 
capital  of  the  country  had  been  forcibly  directed  into  domestic 
channels.  Now  although  savings  are  in  fact,  to  a  certain  extent, 
made  from  the  wages  of  the  labourers,  this  circumstance 
is,  very  probably,  more  than  counterbalanced  by  the  compara- 
tively high  profits  of  the  portion  of  capital  which  is  employed 
in  foreign  countries.  These  high  profits  are  not,  as  some 
might,  at  first  view,  be  disposed  to  think,  merely  such  as, 
besides  an  equal  return  with  that  to  the  capital  employed  at 
home,  is  adequate  to  the  greater  risk  run  of  the  ultimate  loss 


POLITICAL  ECONoJlY.  237 

of  the  capital  itself  from  which  they  are  derived.  They  will 
always  exceed  this  amount,  because  of  the  great  umvillingness 
which  men,  in  general,  feel  to  separate  themselves  for  any 
length  of  time  from  their  property. 

But  here  it  may  be  said  that  the  very  circumstance  last 
mentioned  affords  a  strong  reason  why  the  employment  abroad 
of  a  portion  of  the  capital  of  a  country  will  be  apt  to  have 
injurious  consequences  on  its  prosperity.  When  a  man's  pro- 
perty is  in  another  country,  and  is  yielding  him  a  high  rate 
of  profit,  nothing  is  more  common  than,  after  the  lapse  of  a 
certain  time,  to  see  him  take  up  his  residence  where  it  is 
invested  ;  and  the  whole  amount  of  his  property  must  then  be 
necessarily  regarded  as  a  national  loss.  On  this  ground,  the 
interference  of  the  legislature  with  the  disposal  of  the  capital 
of  individuals  might  perhaps  be  sometimes  justified,  were  it 
only  sufficiently  practicable.  To  render  it  practicable,  how- 
ever, nothing  short  of  an  entire  prohibition  of  the  exportation 
of  commodities  from  a  country  to  all  others  would  be  requi- 
site ;  for  otherwise,  in  despite  of  every  effort  of  the  govern- 
ment, a  man  who  wishes  to  transfer  his  property  to  another 
country  has  only  to  purchase  any  one  article  of  commerce, 
and  to  export  it ;  or  to  purchase  foreign  bills  of  exchange,  the 
amount  of  which,  when  drawn  for,  can  be  invested  abroad, 
and,  when  so  invested,  may  be  regarded  in  the  light  of  a 
value  received  for  commodities,  other  than  money,  previously 
exported. 

In  the  United  States  of  America,  the  point  which  has  just 
been  considered  is  one  of  no  practical  moment,  in  as  much 
as  the  profits  of  capital  are  higher  in  them  than  they  are 
almost  any  where  else.  Capital  is,  in  consequence,  continu- 
ally flowing  to  them  from  other  countries  ;  and  no  inducement 
is  offered,  unless  under  pecuharly  advantageous  circumstances, 
to  employ  it  away  from  home. 

I  come  now  to  an  objection  to  an  unrestrained  trade  with 
foreign  nations,  the  discussion  of  which  has  occupied   no 

31 


238  THE  PRINCIPLES  OF 

small  portion  of  the  attention  of  the  poUtical  economists  of  the 
last  century ;  and,  even  at  the  present  day,  we  hear  it  occa- 
sionally put  forth  by  some  among  the  more  zealous  advocates 
of  restrictive  regulations  in  respect  to  commerce.  It  is  this,  that 
only  that  foreign  trade  is  a  beneficial  one  where  the  exports 
exceed  the  imports  in  value  ;  occasioning  thereby  a  flow  of 
specie  into  a  country  in  payment  of  the  excess,  or  balance. 
Hence  the  expression  "  the  balance  of  trade  ;"  this  being  held 
to  be  favourable  when  the  exports  are  in  excess,  and  unfa- 
vourable when  the  imports  are  so. 

This  whole  doctrine  was  founded  on  the  mistaken  notion, 
that  the  wealth  and  prosperity  of  a  country  depended  essen- 
tially on  the  quantity  of  the  precious  metals  which  it  possessed  ; 
and  it,  indeed,  almost  implied  the  absurdity  that  those  metals 
alone  constituted  what  should  properly  be  denominated  wealth. 
From  this  doctrine  too,  the  important  consequences  were 
deduced,  that  government  should,  in  the  first  place,  do  every 
thing  in  its  power  to  increase  the  whole  amount  of  exports, 
and  to  diminish  the  whole  amount  of  imports, — and  secondly, 
that  it  should  positively  discourage  all  persons  subjected  to 
its  control  from  trading  with  any  foreign  country  from 
which  a  greater  value  is  imported  than  is  exported  to  it. 

If  he  bear  in  mind  the  principles  in  relation  to  money  which 
were  established  in  the  preceding  book,  the  reader  will  easily 
perceive  the  absurdity  of  supposing  that  a  country  is  wealthy 
because  it  has  a  large  amount  of  the  precious  metals.  Those 
metals  constitute  only  a  portion,  and  by  no  means  the  most 
important  portion,  of  the  national  wealtli ;  since  if  the  supply 
of  them  were  to  be  increased,  and  the  circulating  medium 
proportionally  expanded,  this  could  only  be  effected  by  the 
increased  exportation,  or  diminished  production,  of  an  equal 
value  of  commodities  other  than  gold  and  silver  ;  while  at  the 
same  time,  as  has  been  fully  explained,  the  value  of  the  circu- 
lating medium  will  continue  unaltered,  a  given  portion  of  it 


POLITICAL  ECONOMY*  239 

being  depreciated  in  value  according  as  the  whole  of  it  has 
become  larger  than  it  was. 

But  some  persons,  as  I  have  stated,  have  not  contented 
themselves  with  comparing  the  whole  amount  of  exports  with 
the  whole  amount  of  imports,  and  with  inferring  the  pros- 
perity of  a  country  from  an  excess,  real  or  supposed,  of  the 
former  over  the   latter.       Examining   the   commerce   of  a 
country  with   every  other  separately,  they  have  pronounced 
the  commerce  with  that  country  the  exports  to  which  exceed 
in  value  the  imports  from  it  to  be  an  advantageous  commerce, 
and,   on  the  contrary,  the  commerce  with  that  the  imports 
from  which  exceed  the  value  of  the  commodities  exported  to 
it  to  be  a  disadvantageous  commerce ; — and  they  have,  con- 
sequently,  besides    recommending    measures   calculated    to 
augment  the  whole  amount  of  exports  and  at  the  same  time 
diminish  the  whole  amount  of  imports  (exclusive  of  money, 
as  the  terms  exports  and  imports  are  commonly  used),  been 
disposed,  as  has  also  been  stated,  to  discourage  all  commer- 
cial intercourse  of  the  country  in  question  with  particular 
parts  of  the  world.   Here  there  is  an  additional  errour  implied, 
viz.  that  whenever,  in  the  intercourse  of  one  country  with 
another,  the  exports  exceed  in  value  the  imports  of  commodi- 
ties other  than '  money,  specie  must  necessarily  flow  from  the 
latter  into  the  former  country,  for  the  purpose  of  paying  the 
balance.     This  position  would,  indeed,  be  a  correct  one  on 
the  supposition  of  the  foreign  commerce  of  the  two  countries 
being  confined  entirely  to  one  another,  and  on  this  supposition 
only.     In  order  to  make  this  distinctly  appear,  let  us   call 
those  countries  A  and  B  respectively ;    and  let  there  be   a 
third  C,  with  which  a  commerce  is  carried  on  by  each  of 
the  other  two.     Now  it  may  be  conceived   that  A  imports 
from  B  more  than  it  exports  to  it,  that  B  imports  from  C 
more  than  it  exports  to  it,  and  also  that  C  imports  from  A 
more  than  it  exports  to  it.    In  this  state  of  the  commercial  rela- 
tions of  these  three  countries,  A  will  become  indebted  to  B,  B 


240  THE  PRINCIPLES  OP 

to  C,  and  C  to  A.  To  discharge  its  debt  to  B,  A  will,  how- 
ever, not  be  under  a  necessity  of  transmitting  specie  to  that 
country.  The  merchants  of  the  country  A  need  only  to 
draw  bills  of  exchange  upon  their  debtors  in  the  country  C  in 
favour  of  their  creditors  in  B ;  and  the  equilibrium  of  their 
debts  and  credits  may  be  thus  completely  restored.  It  is 
plain,  too,  that  we  may  now  generalise,  and  maintain  that  the 
circumstance  of  more  commodities,  other  than  money,  being 
imported  by  one  country  from  another,  than  are  exported 
by  the  former  to  the  latter,  is  no  evidence  whatever  of  a 
movement  of  specie  between  the  two  countries.  And  hence, 
every  objection  to  the  natural  course  of  trade,  as  that  which 
is  the  most  advantageous  to  a  country,  founded  on  the  assumed 
fact  of  such  a  movement  of  specie,  will  be  perceived  to  be  of 
no  account. 

I  may  observe  that,  should  the  trade  between  A  and  B  be 
diminished,  or  be  entirely  cut  off,  that  of  each  of  them  with  C, 
as  well  as  with  other  countries  generally,  would,  it  will  be 
evident,  not  remain  on  its  former  footing ;  for  then,  in  the 
case  of  A,  there  would  be  an  excess  of  the  whole  amount  of 
exports  over  that  of  imports,  while  the  contrary  of  this  would 
take  place  in  that  of  B.  These  excesses  would  only  have  a 
temporary  existence,  and  the  ordinary  relation  of  exports  to 
imports  would  soon  be  re-estabhshed  by  the  movement  or 
flow  of  specie  from  country  to  country,  as  has  before  been 
explained. 


POLITICAL  ECONOMY.  241 


CHAPTER  IV. 

THE  SUBJECT  OF  THE  BALANCE  OF  TRADE  CONTINUED. 

The  language  in  reference  to  foreign  commerce,  which 
has  been  hitherto  employed,  has  been  such  as  may  have 
appeared  to  imply  an  equality,  on  the  average,  in  the  value  of 
the  exports  from  and  imports  into  a  country,  of  commodities 
other  than  money.  An  equality  of  this  nature  is  certainly 
possible,  but  only  under  a  peculiar  combination  of  circum- 
stances. The  general  law  in  the  case  is,  that  the  value  of  the 
imports  must  exceed  that  of  the  exports,  when  both  these 
values  are  estimated  in  the  country  into  which  the  imports, 
and  from  which  the  exports,  are  made, — and  likewise  when 
the  value  of  the  former  is  estimated  in  the  countries  whence 
they  are  procured,  while  that  of  the  latter  is  estimated  in  the 
country  where  they  are  received. 

To  shew,  in  the  first  place,  that  such  is  the  general  law  on 
the  first  of  the  two  suppositions  which  have  just  been  men- 
tioned, I  shall  set  out  with  assuming  all  the  capital  employed 
in  the  country  to  which  my  remarks  shall  have  relation, — 
say  the  United  States  of  America,  —  to  be  owned  in  the 
country  itself;  and  so,  also,  in  respect  to  the  capital  of  every 
description  employed  in  its  foreign  commerce.  Then  it  will 
be  obvious  that  the  value  of  the  imports  must  be  such  as,  after 
replacing  that  of  the  exports,  will  suffice  to  yield  the  ordinary 
profits  to  all  the  capital  employed  in  the  commerce  with  foreign 
countries,  including  of  course,  in  those  profits,  the  freights, 
as  well  as  every  other  expense  of  transportation.  If  we, 
indeed,  suppose  no  more  specie  to  flow  from  abroad  into  the 
country,  than  from  the  country  in  the  opposite  direction, — a 
condition  of  things  which  is,  on  the  average,  very  supposable, 


242  THE  PRINCIPLES    OP 

where  the  precious  metals  are,  to  an  adequate  extent,  the 
product  of  the  country  itself, — the  excess  of  the  imports  above 
the  exports  will  evidently  be  the  measure  of  those  profits.  On 
the  other  hand,  where  the  supply  of  the  precious  metals  is 
derived  in  part,  or  wholly,  from  abroad,  not  only  bullion,  but 
specie  also,  will  be  imported ;  and  the  latter  in  preference  to 
the  former,  on  account  of  the  certificate  to  its  weight  and 
fineness  that  is  impressed  upon  it.  This  circumstance  may 
prevent  the  imports  from  exceeding  the  exports  as  much  as 
they  would  otherwise  do, — exports  and  imports  being  here 
understood  in  their  usual  acceptation,  as  referring  to  commo- 
dities other  than  money.  It  may  be  added  that,  if  a  country 
which  derives  its  supply  of  gold  and  silver,  in  whole  or  in  part, 
from  other  countries,  should  happen  to  be  augmenting  more 
rapidly  in  population  and  wealth  than  the  other  portions 
generally  of  the  commercial  world,  specie  would,  in  con- 
sequence, be  imported  more  extensively,  and  the  excess  of  the 
ordinary  imports  above  the  exports  would,  on  this  account 
too,  be  lessened. 

In  the  next  place,  however,  let  all  the  capital  employed  in 
the  country,  or  in  its  foreign  commerce  and  navigation,  not 
be  the  property  of  individuals  residing  in  it.  The  profits  of 
the  capitalists  abroad  will  in  this  case,  of  course,  have  to  be 
exported,  or,  what  amounts  to  the  same  thing,  an  equal  value 
in  commodities  that  would  otherwise  contribute  to  swell  our 
imports  will  be  retained  abroad,  and  will  again  reduce  the 
excess  of  imports  above  exports. 

Should  the  capital  of  a  country,  tempted  by  the  superior 
advantages  offered  for  its  investment  elsewhere,  be  to  a 
certain  extent  annually  transferred  from  it  to  other  countries, 
we  would  have  another  reason  why  the  exports  will  be 
augmented  in  value,  and  why  the  excess  of  the  imports  above 
them  will  be  still  farther  diminished,  if  not  made  to  disappear 
entirely. 

But  this,  it  may  be  meaitioned,  is  very  far  from  being  the 


POLITICAL  ECONOMY.  243 

case  in  the  United  States.  American  capital  is,  no  doubt, 
occasionally,  though  in  a  comparatively  small  amount,  em- 
ployed out  of  the  country :  still,  speaking  in  general  terms, 
no  one  will  deny  that  our  capital  is  continually  receiving 
accessions,  and  by  no  means  inconsiderable  accessions,  from 
the  various  parts  of  Europe,  and  especially  from  Great 
Britain.  On  this  account,  the  excess  of  our  imports  above 
our  exports  ought  to  be  unusually  large. 

If  the  value  of  the  imports  be  estimated  by  what  they  cost 
in  the  countries  whence  they  were  procured,  they  will  mani- 
festly not  so  much  exceed  the  value  of  the  exports  as  when 
the  values  of  both  exports  and  imports  are  estimated  at  home 
in  the  same  country, — the  case  already  considered.  Never- 
theless, I  think  my  readers,  after  the  statements  above  made, 
can  scarcely  fail,  even  here,  to  assent  to  the  proposition,  that 
the  imports  will,  very  generally,  exceed  the  exports  in  value, 
in  the  common  acceptation  of  the  terms ;  and  they  will, 
moreover,  not  be  at  all  surprised  to  find  that  such  has  been 
the  fact  in  the  United  States,  from  the  first  adoption  of  the 
constitution,  in  1789,  to  the  present  time,  when  they  are  told 
that  the  value  of  our  imports  is  estimated  by  adding  10  or  20 
per  cent,  to  their  cost  in  the  countries  where  they  are  pur- 
chased, and  when  they  keep  in  mind,  both  the  high  rate  of 
profits  which  must  be  paid  from  the  imports,  and  the  influx 
of  capital  which  is  continually  taking  place  from  abroad. 

The  absurdity  of  regarding  an  excess,  and  sometimes  an 
impossible  excess,  of  exports  above  imports,  as  the  measure 
of  the  advantage  to  be  derived  by  a  nation  from  its  foreign 
commerce,  must  be  too  apparent  for  me  to  dwell  upon  it 
longer.  This  doctrine  indeed,  of  the  balance  of  trade  being 
favourable  to  a  country  when  an  excess  of  exports  is  supposed 
to  exist,  however  largely  it  has  figured  in  the  writings  of  the 
economists,  real  or  pretended,  of  the  last  century,  may  be 
regarded  as  at  present  almost  entirely  exploded. 


244  THE  TKINCIPLES  OF 


CHAPTER  V. 

ON  THE  AMOUNT  OF  THE  DUTY  UPON  A  COMMODITY,  WHEN  IT  IS 
IMPORTED  FROM  ABROAD,  WHICH  WILL  ADMINISTER  ADEQUATE 
ENCOURAGEMENT  TO  THE  DOMESTIC  PRODUCERS. 

We  now  approach  the  discussion  of  a  subject  which  has 
attracted  in  no  small  degree  the  attention  of  the  political 
philosophers  and  statesmen  of  modern  times,  and  which,  in 
our  own  country,  has  been  the  occasion  of  much  excitement 
and  agitation  in  the  community  at  large.  I  allude  to  what  is 
familiarly  styled  with  us  "  the  tariff  question," — or,  in  other 
words,  to  the  expediency,  or  inexpediency,  of  prohibiting  the 
importation  into  a  country  from  abroad  of  certain  commodi- 
ties, with  the  object  in  view  of  estabhshing  the  production  of 
the  like  commodities  at  home.  Prohibiting  is  here  the  proper 
word;  for  although  the  advocates  of  this  system  of  inter- 
ference with  the  natural  order  of  things  have,  in  most  cases, 
preferred  the  imposing  of  a  tax  or  duty  on  the  importation  of 
such  commodities  as  are  of  the  same  description  with  those 
which  they  are  desirous  of  being  produced  at  home,  to  the 
absolute  prohibition  of  importing  them  from  other  countries, 
they  have  yet  insisted  upon  the  duties  imposed  being  suffi- 
ciently high  to  operate  prohibitorily.  And,  according  to  their 
notions  of  expediency,  they  have  done  right  to  insist  upon 
this ;  as  I  shall  proceed  to  shew  before  actually  entering  on 
the  proposed  discussion. 

Let  us  suppose  a  duty  of  ten  per  cent,  to  be  imposed  upon 
the  value  of  any  article  of  foreign  growth  or  manufacture, 
when  imported  into  the  United  States  ;  and  let  us  also  suppose 
the  duty  to  be  paid,  in  the  first  instance,  by  the  importing 
merchant,  at  the  time  he  receives  the  article.  The  quantity 
of  it  imported  will  not  be  as  great  as  before  ;  since,  in  that 


POLITICAL  ECONOMY.  245 

case,  in  as  much  as  both  the  supply  of,  and  the  demand  for  it, 
would  remain  unaltered,  its  price  would  still  be  w^hat  it  was 
previous  to  the  imposition  of  the  duty ;  and,  the  merchant 
would  then  be  obliged  to  take  from  his  profits, — and,  where 
these  were  not  at  a  rate  high  enough  to  be  equal  in  amount  to 
the  duty  to  be  paid,  he  would  be  obliged  to  take  from  his 
capital,  after  having  exhausted  his  profits, — in  order  to  make 
the  payment  required.  It  is  evident  that  a  portion  of  the  capital 
employed  in  the  importation  of  the  article  in  question  will  be 
transferred  to  other  employments ;  thus  diminishing  the  supply 
of  it  in  a  degree  sufficient  to  cause  its  price  to  be  ten  per  cent, 
higher  than  it  was  before,  when  it  will  be  just  sufficient  to 
enable  the  capital  of  the  merchant  to  yield  him  the  ordinary 
profits.  If  his  payment  of  the  duty,  and  the  sale  by  him  of 
the  article  imported,  be  not  contemporaneous,  but  the  latter 
occur  at  a  certain  interval  after  the  former,  it  will  be 
requisite  for  its  price  to  exceed  that  just  mentioned,  by  an 
amount  equivalent  to  the  profits,  for  the  intervening  time, 
upon  the  duty  which  he  advances.  Assuming  however,  for 
the  sake  of  simplicity,  that  the  payment  of  the  duty  on 
the  imported  article,  and  the  sale  of  it,  take  place  at  the 
same  time,  it  will  follow  that  the  burthen  of  the  duty  is 
transferred  by  the  merchant  who  imports  it  from  his  shoul- 
ders to  those  of  his  customers,  the  retail  dealers.  And  in 
the  very  same  manner  as  this  transfer  of  the  duty  has  been 
shewn  to  be  effected,  may  it  be  shewn  to  be  transferred 
from  the  retailers  to  the  consumers. 

The  whole  supply  of  the  commodity  upon  which  the  duty 
is  levied  has  been  supposed  to  be  still  procured  from  abroad, 
in  despite  of  the  augmentation  of  its  price  to  the  consumers ; 
a  supposition,  again,  implying  that  it  is  impossible  for  it  to 
be  produced  in  the  country  itself  except  at  a  cost  greater  than 
that  at  which  it  can  be  procured  from  abroad,  including  in  the 
latter  cost  the  amount  of  the  duty. 

Suppose  now  the  commodity  taxed  to  be  broadcloth  of  a 

32 


246  THE  PRINCIPLES  OF 

particular  quality ;  say  cloth  which,  if  allowed  to  be  imported 
freely,  that  is  without  any  obstruction  on  the  part  of  the  govern- 
ment, would  sell  for  five  dollars  the  yard.  A  duty  of  ten  per 
cent,  upon  this  value  will  cause  it  to  rise  to  five  and  a  half 
dollars  ;  and  if  the  cost  of  producing  the  cloth  in  the  country 
would  be  six  dollars,  the- supply  of  it  will,  it  must  be  manifest, 
com.e  wholly  from  other  parts  of  the  world.  This,  too,  would 
be  a  continued  state  of  things,  while  the  duty  is  increased  from 
ten  up  to  any  amount  short  of  twenty  per  cent. 

If  we  suppose  the  duty  to  exceed  the  last  mentioned  per 
centage,  and  to  amount  say  to  thirty  per  cent,  on  the  value  of 
the  cloth  which  may  be  imported,  the  price  of  it  would  rise  to 
six  dollars  and  a  half;  and  as  cloth  of  the  same  quality  is,  by 
hypothesis,  produceable  at  home  for  six  dollars  only,  the  foreign 
article  will  be  no  longer  able  to  compete  with  the  domestic 
manufacture.  While  the  former  will,  in  consequence,  cease 
to  be  imported,  the  latter,  by  means  of  the  encouragement  or 
protection  afforded  to  it  by  the  government  in  the  imposition 
of  the  duty,  will  be  established  as  a  regular  branch  of  indus- 
try. So,  of  course,  if  the  duty  be  other  than  thirty  per  cent., 
provided  it  be  more  than  the  rate,  viz.  twenty  per  cent.,  which 
would  cause  the  domestic  and  the  foreign  article  to  sell  at 
exactly  the  same  price. 

But,  in  the  next  place,  let  us  inquire  what  the  effect  of  the 
duty  would  be,  in  the  case  under  consideration,  were  it  to  be 
neither  more  nor  less  than  just  twenty  per  cent.  Here  it  might 
perhaps  seem,  at  first  view,  that  one-half  of  the  supply  of  the 
article  in  question  would  be  furnished  by  the  American  manu- 
facturer, and  the  other  half  by  the  foreign.  On  farther  reflec- 
tion however,  the  reader  will  perceive  that  such  an  equal 
division  is  scarcely  practicable,  and  that,  if  it  were  so,  it  could 
subsist  only  for  a  very  short  period.  It  is  evident  that  when 
the  duty  of  twenty  per  cent,  is  first  imposed,  the  investments 
of  capital  at  home  and  abroad  being  of  a  nature  to  give  the 
foreign  producer  the  possession  of  the  American  market,  no 


POLITICAL  ECONOMY.  247 

sufficient  motive  exists  for  the  transfer  of  American  capital 
with  a  view  to  the  production  of  the  article  taxed.  Any 
attempt  on  the  part  of  our  capitalists  to  engage  in  its  produc- 
tion, under  these  circumstances,  must  necessarily  be  followed 
by  an  overstocking  of  the  market  and  consequent  lowering 
of  prices, — which  lowering  of  prices  must  render  such  an 
attempt  an  unprofitable  one.  On  the  other  hand,  should  a 
higher  duty  than  twenty  per  cent., — a  duty  which  had  been 
the  means  of  excluding  the  foreign  article,  and  establishing 
the  manufacture  of  American  broadcloth, — be  reduced  to  that 
amount ;  the  American  producer  being  in  possession  of  the 
market,  no  sufficient  motive  would  be  presented  to  capitaUsts 
abroad  for  augmenting  their  production  of  broadcloth,  and  for 
thus  interfering  wdth  him. 

Speaking  generally  therefore,  we  may  infer  that  to  insure 
the  production  in  the  country  of  the  article  mentioned,  and  the 
same  is  manifestly  true  of  any  other  article  whatever,  it  will 
be  necessary  to  impose  a  duty  on  the  importation  of  i\.  greater 
than  the  excess  of  the  cost  of  producing  it  at  home  over  the 
price  at  which  it  can  be  sold  on  being  imported  from  abroad, 
that  is,  as  I  have  said,  to  impose  a  duty  the  proper  effect  of 
which  is  prohibitory. 

Notwithstanding,  however,  the  statement  which  has  just 
been  made,  if  the  duty  on  the  imported  article  does  not  much 
exceed  the  excess  of  the  cost  of  producing  it  at  home  over 
the  cost  of  producing  it  abroad,  it  will  occasionally  happen 
that  it  will  be  profitable  to  import  it ;  and  the  domestic  pro- 
ducers will  not  be  so  protected  as  absolutely  to  exclude  all 
foreign  competition.  This  will  be  owing  to  the  occasional 
fluctuations  in  the  local  value  of  money ;  leading,  as  those 
fluctuations  in  value  have  been  shewn  to  lead,  to  a  variable 
amount  of  importations. 

I  may  here  remark,  it  is  only  in  the  way  just  mentioned  that 
a  duty,  imposed  on  the  importation  into  a  country  of  any 
commodity,  can  operate  alternately  as  a  means  of  revenue  to 


248  THE  PRINCIPLES  OF 

the  government,  and  as  a  means  of  encouraging  its  production 
at  home.  No  duty  can,  at  one  and  the  same  time,  produce 
both  these  effects.  When  it  encourages  the  domestic  produc- 
tion of  a  commodity,  it  will  bring  no  revenue  into  the  public 
treasury ;  and  when  it  brings  a  revenue  into  the  public 
treasury,  it  will  not  serve  to  encourage  the  domestic  produc- 
tion of  the  commodity.* 


CHAPTER  VI. 

DISCUSSION  OF  THE  "  TARIFF  QUESTION." 

There  are  many  individuals  in  our  own  country  who  are 
ready  to  assent  to  the  general  inexpediency  of  the  interference 
of  governments  with  the  natural  distribution  of  capital  and 
labour,  and  who  would  strenuously  resist  any  attempt  to  dis- 
turb the  perfect  freedom  of  trade  as  at  present  subsisting 
between  the  different  portions  of  the  Union,  who,  nevertheless, 
entertain  the  notion,  that  the  commerce  between  different 
nations  cannot  be  always  considered  as  on  the  most  advanta- 
geous footing  when  it  is  left  wholly  unrestricted ;  and  who 
attempt  to  justify  the  imposition  of  very  high  duties  on  the 
importation  of  foreign  goods  by  the  fact  of  the  rate  of  wages 
being  lower  in  Great  Britain  than  among  ourselves.  They 
insist  upon  the  propriety  of  thus  protecting  the  American  pro- 

*  Throughout  this  chapter,  I  have  supposed  the  commodities  concerned  to  be 
produced  under  circumstances  of  equal  advantage  or  disadvantage.  Should  this 
not  be  the  case,  it  is  very  possible  that,  with  a  given  amount  of  duty,  those  which 
are  produced  under  the  more  advantageous  circumstances  in  the  country  itself 
might  exclude  from  the  home  market  such  as  are  produced  abroad  under  tlie  less 
disadvantageous  circumstances. 


POLITICAL    ECONOMY.  249 

ducer  from  the  competition  of  the  paupers  of  Europe.  Let 
us  now  inquire  into  the  correctness,  or  incorrectness,  of  this 
doctrine. 

My  readers  will  perceive  that  it  erroneously  implies  that 
mere  lowness  of  wages  is  the  cause  of  low  prices.  It  will  be 
recollected  by  them  that,  in  any  existing  state  of  the  arts,  prices 
will  depend  as  well  upon  the  rate  of  profits  as  upon  that  of 
wages.  If  British  goods  can  be  imported  into  the  country 
cheaper  than  goods  of  a  similar  description  can  be  produced 
in  it,  this  will  not  be  owing  simply  to  the  circumstance  of 
wages  in  Great  Britain  being  lower  than  in  the  United  States, 
but  to  that  of  wages  and  profits,  taken  together,  being  as  low  as 
they  in  reality  are  in  the  first  mentioned  country,  and  as  high  as 
they  in  reality  are  in  the  one  last  mentioned.  Again,  I  shewed 
in  my  first  book  that,  in  any  existing  state  of  the  arts,  or,  what 
amounts  to  the  same  thing,  of  the  productive  power  in  a  nation, 
if  wages  were  to  fall,  profits  must  necessarily  rise, — and  that, 
in  consequence,  such  commodities  as  were  the  products  chiefly 
of  fixed  capital,  instead  of  falling  in  price  as  wages  fall,  would 
have  their  prices  greater  than  before.  Hence  too,  it  follows, 
— what  has  been  before  mentioned, — that,  if  it  were  possible 
at  once  to  raise  the  wages  of  the  English  labourer  to  a  level 
with  those  of  the  labourers  in  America,  it  might  very  well 
happen  that  the  manufacturers  of  our  own  country  would  be 
at  a  comparatively  greater  disadvantage  in  respect  to  foreign 
competition  than  they  are  at  present. 

But  waiving  all  considerations  of  the  kind  which  has  just 
been  stated,  I  think  it  will  not  be  difficult  to  convince  the 
reader  that  the  low  rate  of  wages  abroad,  other  circumstances 
remaining  every  where  the  same,  is  an  advantage  to  us  instead 
of  a  disadvantage.  A  low  rate  of  wages  will  then  render  the 
cost  of  producing  commodities  of  all  descriptions,  and  there- 
fore their  prices,  correspondently  low  ;  and  a  given  quantity 
of  them  may  be  procured  from  abroad  in  exchange  for  a 
less  amount  of  our  own  products,  than  when  pxices  were 


250  THE  PRINCIPLES  OF 

higher.  This  saving  in  the  expenditure  necessary  for  obtain- 
ing the  imports  into  the  country  is,  it  is  plain,  a  clear  national 
gain.  The  imports  may  very  possibly,  on  account  of  the 
increased  demand  for  them  at  a  low^er  price,  be  greater  than 
they  would  otherwise  be ;  but  such  an  effect  cannot  take 
place  without  a  similar  augmentation  of  the  amount  of  exports. 
And  a  transfer,  to  a  certain  extent,  of  American  capital  may 
be  required  on  a  fall  of  wages  abroad,  in  order  that  it  may 
come  to  be  invested  most  profitably.  Whether,  however, 
such  a  transfer  be  large  or  small,  or  do  not  occur  at  all, 
the  command,  on  the  average,  of  each  individual  of  the 
community  over  the  necessaries  and  luxuries  of  life  will  have 
been  evidently  enlarged. 

Here  the  advocates  for  rectrictions  upon  the  foreign  com- 
merce of  the  country  offer  to  us  an  argument  which  they 
sometimes  seem  to  regard  as  conclusive  in  their  favour.  They 
put  the  extreme  case,  that  all  things  can  be  produced  cheaper 
abroad  than  at  home ;  and  they  ask  if,  in  such  circumstances 
as  these,  the  friends  of  a  free  trade  among  nations  would  still 
insist  upon  no  protection  being  afforded  by  the  government  to 
the  home-producers.  I  answer  for  the  latter  in  the  affirmative, 
— on  the  ground  that,  although  the  importation  of  every  species 
of  commodity  from  abroad  cheaper  than  it  can  be  produced  at 
home  is  a  supposable  state  of  things,  it  is  altogether  out  of  the 
question  to  suppose  it  to  have  more  than  a  momentary  dura- 
tion. The  extraordinary  importations,  which  would  flow  from 
every  quarter  into  the  country,  would  have  to  be  paid  for 
exclusively  in  money ;  and  as  the  circulating  medium  is  thus 
diminished  in  quantity,  a  given  portion  of  it  would  be  enhanced 
in  value,  or  prices  generally  would  fall.  It  is  evident,  too,  that 
they  would  continue  to  fall  until  no  sufficient  motive  would 
exist  for  sending  the  money  of  the  country  abroad.  During 
the  fall  of  prices,  first  one  commodity,  and  then  another,  and 
another,  would  cease  to  be  imported ;  while,  on  the  other 
hand,  one  commodity  after  another  would  begin  to  be  exported. 


POLITICAL  ECONOMY.  251 

Moreover,  when  the  value  of  money  was  again  every  where 
equalised,  and  it  was  no  longer  the  subject  of  exportation, 
the  exports  and  imports  will  have  the  ordinary  relation  to 
each  other, — a  relation  explained  in  a  preceding  chapter. 

The  diminution  of  the  circulating  medium  will  have  been  fully 
compensated  for,  by  the  commodities  imported  in  exchange 
for  the  money  which  has  been  transmitted  to  other  parts  of 
the  world.  Indeed,  those  commodities,  as  in  every  other 
instance  of  the  importation  of  commodities  in  exchange  for  a 
portion  of  the  medium  of  circulation,  are  a  clear  gain  to  the 
country,  because  of  the  augmenting  in  value  of  a  given  portion 
of  that  medium  exactly  in  proportion  as  the  whole  of  it  is 
reduced  in  quantity. 


CHAPTER  VII. 


THE  SUBJECT  CONTINUED. 


My  argument  against  a  "  protecting  tariff'"  has  thus  far 
proceeded  on  the  supposition  of  the  previous  existenjce  of  an 
entire  freedom  of  trade  among  the  different  nations  of  the 
earth  ;  which  freedom  it  is  proposed,  for  the  first  time,  to 
disturb.  I  will  now  take  another  step  in  advance,  by  sup- 
posing the  condition  of  free  trade  to  have  been  already 
disturbed  by  some  one  nation, — Great  Britain  for  example. 
The  question  then  presenting  itself  foi-  solution  is,  whether  all 
other  nations  would  not  best  consult  their  interests  by  counter- 
vailing the  restrictions  which  have  been  imposed  upon  their 
commerce,  by  means  of  the  imposition  of  similar  restrictions 
on  British  commerce.  Or  to  bring  the  manner  home  to  our- 
selves, the  question  may  be  put  in  the  following  form : — 


252  THE   PRINCIPLES  OF 

should  Great  Britain  refuse  to  receive  into  her  ports 
American  cotton  and  tobacco,  would  it  be  our  true  policy  to 
retaliate  upon  her,  by  refusing  to  receive  her  hardvv^are  and 
woollens  ? 

A  reply  to  this  question  needs  not  to  be  long  sought  after. 
For  the  government  of  the  United  States  to  act  on  the  principle 
suggested,  would  be  to  say  to  that  of  Great  Britain, — by  your 
legislation  you  have  injured  your  own  country,  and  you  have 
at  the  same  time  injured  the  people  of  America ;  therefore,  by 
way  of  helping  the  matter,  we  resolve  upon  inflicting  a  similar 
injury,  absurd  and  ridiculous  as  this  procedure  may  seem,  upon 
both  you  and  ourselves. 

That  the  foreign  government  is  guilty  of  an  injury  to  its 
own  subjects,  is  sufficiently  evident  from  what  has  been  already 
delivered  in  the  present  book.  By  refusing  to  receive  our  cotton 
and  tobacco,  the  consumers  of  these  articles  will  be  obliged  to 
pay  a  higher  price  for  them,  than  they  would  otherwise  have 
to  do.  They  will  also  consume  less  of  them  than  they  formerly 
did;  and  at  least  in  reference  to  the  article  last-mentioned,  which 
is  not  a  necessary,  but  a  mere  luxury  of  life,  many  who  would 
have  been  consumers  of  it,  will  not  consume  it  at  all.  English- 
men, for  these  reasons,  will  possess  a  diminished  command 
over  the  necessaries  and  luxuries  of  life  ;  or,  in  other  words, 
the  wealth  of  Great  Britain  will  have  been  diminished.  And 
that  a  like  effect  will  be  produced  on  the  wealth  of  the  United 
States,  will  follow  from  the  principle  previously  estabhshed, 
that  the  imports  into  a  country,  and  the  exports  from  it,  will 
always  bear  to  each  other  a  certain  proportion,  so  that  the 
exports  cannot  undergo  a  diminution  without  the  imports  like- 
wise becoming  less  than  they  have  hitherto  been.  Until  the 
imports  of  British  goods  are  reduced  to  the  proper  amount,  the 
excess  of  them  will  be  paid  for  in  money.  Their  prices 
abroad  will  consequently  rise ;  and  they  will,  moreover, 
continue  at  a  higher  rate.  Not  only  then,  will  those  of 
the  inhabitants  of  America,  who  are  not  altogether  prevented 


POLITICAL    ECONOMY.  253 

from  consuming  foreign  goods,  consume  them  to  a  less  extent 
than  before,  but  to  consume  them  will  require  a  greater  ex- 
penditure on  their  part.  All  this,  too,  is  identical  with  sayino- 
that  a  diminution  of  American  wealth  will  have  taken  place. 

It  is  scarcely  necessary  for  me  to  add  that  the  very  same 
series  of  effects  which  I  have  just  traced,  as  consequent  upon 
a  duty  imposed  in  Great  Britain  on  certain  of  the  products 
of  the  United  States, — effects  injurious  to  both  countries, — will 
occur  when  a  duty  is  imposed  in  America  on  the  importation 
of  British  goods,  only  beginning  in  a  different  quarter. 

But  let  us,  in  the  next  place,  suppose  the  extreme  case  of  all 
foreign  countries  refusing  to  receive  any  thing  from  the  United 
States,  excepting  gold  and  silver,  in  exchange  for  the  commo- 
dities imported  from  them.  It  may  be  asked,  whether  it  would, 
notwithstanding,  be  then  proper  to  import  as  before  from 
abroad,  and  to  subject  our  country,  in  consequence,  to  being 
drained  of  its  specie.  I  observe,  in  reply,  that  the  foregoing 
argument  will,  on  reflexion,  be  perceived  by  the  reader  to  be 
applicable  to  every  possible  case,  without  exception.  He  can- 
not, too,  but  be  now  aware  that  to  suppose  a  country  to  part 
with  all  its  specie  is  an  absurdity.  According  as  specie  flows 
from  it,  in  exchange  for  the  commodities  imported,  the  prices 
of  things  will  be  falling  ;  and  the  imports  will  diminish  in 
quantity,  until,  at  length,  it  will  become  unprofitable  to  im- 
port any  thing  whatever. 

Universally,  therefore,  the  amount  of  the  imports  will  deter- 
mine that  of  the  exports ;  so  that  no  interference  of  the  govern- 
ment will  be  requisite  to  protect  the  country  from  an  entire 
loss  of  its  specie.  And  it  has  been  shewn  that  a  diminution  of  its 
specie  is  a  matter  of  no  permanent  moment. 

In  despite,  however,  of  the  above  argument, — irrefutable 
argument  1  may  surely  venture  to  call  it, — in  favour  of  the  sys- 
tem of  free  trade  as  opposed  to  that  of  restriction,  we  hear  it 
continually  asserted  that,  while  the  former  system  is  an  untried 
one,  excepting  perhaps  in  one  or  two  instances  on  a  very  limit- 

33 


254  THE    PRINCIPLES    OF 

ed  scale,  the  latter  has  every  where  been  accompanied  by  an 
amount  of  prosperity  altogether  too  great  to  be  made  the  sub- 
ject of  legislative  experiment.  Here  I  might  reply  by  a  denial 
of  the  alleged  prosperity ;  or,  what  is  equivalent  to  such  a 
denial,  I  might  point  the  attention  of  my  readers  to  the  great 
amount  of  misery  hitherto  exhibited  by  every  community  of 
individuals,  whatever  may  have  been  the  constitution  of  gov- 
ernment under  which  they  have  hved.  Even  in  the  most 
prosperous  communities,  the  wealthy  have  been  few  and  the 
poor  many.  But  granting,  for  the  sake  of  argument,  that 
prosperity  to  a  certain  extent  has  actually  accompanied  the 
restrictions  which  governments  have  imposed  upon  commerce, 
it  would  be  strikingly  illogical  on  the  part  of  any  one  who  is 
aware  of  the  multitude  of  causes  by  whose  combined  action 
the  condition  of  mankind  is  determined  to  be  what  it  in  reality 
is,  to  magnify  one  cause  alone  in  such  a  degree  as  to  throw 
every  other  into  the  shade.  The  utmost  we  would  be  justified 
in  inferring  from  the  premises,  is  a  pi-esumption  in  favour  of 
things  as  they  are, — a  presumption  putting  the  burthen  of  proof 
on  the  party  who  may  at  any  time  propose  the  introduction  of 
any  changes  in  the  policy  of  a  country.  This  burthen  the 
advocates  of  free  trade  have  evinced  no  unwillingness  to 
bear.  They  have  presented,  for  the  consideration  and  con- 
viction of  their  opponents,  the  argument  which  I  have  charac- 
terised as  irrefutable,  and  to  refute  which  no  direct  attempt 
has  in  fact,  to  my  knowledge,  ever  been  made. 

The  restrictive  policy  of  Great  Britain,  when  viewed  in 
connexion  with  the  degree  of  prosperity  to  which  she  has 
attained,  is  what  especially  has  prevented  very  many  indivi- 
duals from  being  adequately  impressed  by  the  argument  in 
question.  But  a  suspicion,  at  least,  miglil  have  crossed  their 
minds  that  the  prosperity  just  mentioned  existed  notwilh standing 
the  policy  pursued  in  respect  to  foreign  commerce,  and  not  in 
consequence  of  it,  had  they  attended  to  the  cases  of  some  other 
countries  distinguished  for  their  comparative  prosperity,  such 


POLITICAL  ECONOMY.  255 

as  Holland  or  Switzerland,  which  afford  to  us  instances  of  a 
near  approach  to  the  system  of  free  trade. 

It  may  be  remarked  besides,  that,  when  improvements  in 
any  of  the  arts  of  life  are  first  promulgated  to  the  world  by 
their  inventors,  no  one  whose  opinion  is  entitled  to  the  slightest 
consideration  is  found  to  condemn  them  a  priori,  on  the  ground 
of  the  danger  and  inexpediency  of  interfering  with  the  existing 
condition  of  things.  Any  opposition  to  their  being  adopted 
proceeds  invariably  on  the  assumption  of  their  not  having 
as  yet  been  proved  to  be  real  improvements.  Surely  then, 
no  person  endowed  with  the  faculty  of  reason  should  system- 
atically shut  his  eyes  in  the  case  under  examination,  to  the 
demonstrations  of  the  political  economist,  and  undertake  to 
encounter  these  simply  by  the  cry  of  theory !  theory  !  thereby 
implying  that  all  experience  is  opposed  to  them  ;  when  the  case 
under  examination  is  one  perfectly  analogous  to  that  of  an 
improvement  in  the  arts, — in  reference,  that  is,  to  the  effects 
upon  the  progress  of  national  wealth, — as  the  reader  will  recol- 
lect it  was  stated  to  be  in  a  previous  part  of  the  present 
work.  In  both  cases  alike  the  labour  of  the  community  is 
rendered  more  productive  than  it  was  before. 


CHAPTER  VIII. 


THE  SAME  SUBJECT  CONTmUED. 


Were  the  restrictionists  to  contejit  themselves  with  con- 
founding, in  the  manner  that  has  been  explained,  mere  casual 
coincidence  in  time  and  place  with  the  relation  of  cause  and 
effect,  it  would  be  tantamount  with  an  acknowledgment  on 
their  part  of  the  weakness  of  the  position  assumed  by  them. 


256  THE  PRINCIPLES  OF 

But  besides  being  guilty  of  this  not  very  unusual  fallacy  in 
logic,  they  point  triumphantly  to  the  branches  of  industry 
which  have  been  actually  created,  in  more  than  one  country, 
by  the  fostering  hand  of  government,  and  to  the  numbers  of 
the  people  for  whom  ,  employment  has  been  thus  provided. 
They  forget  that  it  is  not  in  the  power  of  the  government  of 
a  country,  by  any  legislative  act,  to  command  capital  into 
existence.  All  that  can  be  accomplished  by  such  means,  in 
respect  to  capital,  is  to  cause  its  transfer  from  one  employ- 
ment to  another  ;  and  if  new  branches  of  industry  be  perceived 
to  spring  up,  on  account  of  the  protection  or  encourage- 
ment afforded  them  by  the  imposition  of  duties  on  the  impor- 
tation from  abroad  of  goods  of  a  particular  description,  we 
may  rest  assured  that  the  quantity  of  capital  which  is  em- 
ployed in  all  the  various  branches  of  industry,  taken  together, 
will  have  remained  unaltered.  The  only  point,  indeed,  really 
at  issue  between  the  advocates  of  a  free  trade  among  nations 
and  their  opponents,  is  whether  a  certain  portion  of  the  capital, 
and  therefore  labour,  of  the  country,  shall  be  engaged  in  pro- 
ducing those  commodities  which  are  ordinarily  exported  in 
exchange  for  the  commodities  imported  from  other  countries, 
or  whether  it  shall  be  engaged  in  directly  producing  these  last ; 
and  this  necessarily  at  a  greater  cost  than  they  could  be  pro- 
cured from  abroad. 

The  case  of  Great  Britain,  as  has  already  been  mentioned, 
is  very  frequently  referred  to,  for  the  purpose  of  illustrating 
the  beneficial  effects  of  the  legislative  encouragement  of  parti- 
cular branches  of  industry.  For  example,  in  the  reign  of 
Edward  the  Third,  the  woollen  manufacture,  which  subse- 
quently became  so  extensive  a  source  of  British  wealth,  was 
established  through  the  instrumentality  of  such  encouragement. 
And  there  is  scarcely  any  other  of  the  staple  manufactures  of 
Great  Britain  which  does  not  owe  its  origin  to  the  interference 
of  the  government  in  its  behalf.  Although  capital,  in  all  these 
instances,  was  merely  transferred  from  one  employment  to 


POLITICAL  ECONOMY.  257 

another  and  less  profitable  one,  yet  I  am  disposed  to  concede 
that  the  encouragement  bestowed  upon  manufactures  in  a 
European  country  some  centuries  ago,  when  the  community 
consisted  only  of  the  two  classes  of  the  nobility  and  of  their 
retainers  or  vassals,  had,  in  a  certain  degree,  a  beneficial  ten- 
dency. It  contributed,  with  other  causes,  to  the  formation,  at 
that  period,  of  an  intelligent  middling  class,  so  essential  for  the 
attainment  by  a  people  of  even  the  smallest  degree  of  political 
liberty,  as  well  as  for  maintaining  and  extending  this  after  it  has 
been  once  attained.  There  is  more  than  one  country,  in  our 
own  day  too,  in  which  it  might  perhaps,  for  similar  reasons,  be 
expedient  to  depart  from  the  course  prescribed  by  the  general 
principles  of  political  economy.  In  the  United  States  of 
America,  however,  the  liberal  constitution  of  the  government, 
together  with  the  character  of  the  people  generally,  furnish 
certainly  not  the  shadow  of  a  pretence  for  the  adoption  of  any 
such  measure. 

But  there  are  some  persons  who,  while  they  seem  to  be 
aware  that  the  interference  of  the  government,  in  behalf  of  a 
particular  branch  of  industry,  merely  occasions  a  diflerent 
distribution  of  the  capital  of  a  country,  nevertheless  maintain 
that  what  is  called  the  natural  distribution  of  it  is  the  most 
advantageous  one,  only  ou  the  supposition  of  the  degree  of 
acquired  skill  in  the  various  arts  of  life  being  the  same  among 
every  people, — a  supposition  which,  I  need  not  say,  cannot  be 
admitted,  when,  in  one  country,  a  certain  branch  of  industry 
has  been  long  established,  and  at  the  same  time,  in  another,  it 
has  not  as  yet  been  introduced.  The  labourers  of  the  latter 
country  must,  in  respect  to  the  branch  of  industry  in  question, 
be  evidently  less  productive  than  the  labourers  of  the  former; 
and  capital  will,  for  this  reason,  not  be  invested  in  it.  Under 
these  circumstances,  the  propriety  is  urged  of  teniporanly  pro- 
tecting every  commodity  from  foreign  competition  which 
there  is  good  reason  to  suppose  can  be  produced  as  cheaply 
at  home  as  abroad,  if  only  the  ordinary  degree  of  skill  be  once 


258  THE    PlilXCIPLES    OP 

acquired  by  the  workmen  of  the  country.  Any  sacrifice  of 
national  wealth  which  such  a  protection  as  this  would  imply, 
during  the  period  of  its  existence,  it  is  asserted  would  be  more 
than  compensated  by  the  ultimately  greater  productiveness  of 
labour,  in  consequence,  to  ensue. 

In  opposition  to  the  protection  or  encouragement  here 
recommended,  it  may  be  observed  that  a  practical  difficulty 
will,  in  most  cases,  subsist  in  determining  whether  or  not  a 
commodity  can  be  produced  as  cheaply  at  home  as  abroad ; 
that  is,  before  the  experiment  is  actually  made  of  its  pi-oduction 
at  home  under  the  most  favourable  circumstances  of  acquired 
skill, — and  that  if  the  matter  be  left  to  the  discretion  of  the 
legislature,  they  will  be  apt,  not  unfrequently,  to  discover  good 
reasons,  for  imposing  one  duty  after  another  on  commodities 
imported,  in  the  mere  urgency  of  interested  and  influential 
individuals,  or  in  other  considerations  of  an  equally  objection- 
able character. 

That  the  legislative  encouragement  of  certain  branches  of 
industry  is  very  often  of  advantage  to  some  particular  section 
of  country  will  not  be  denied  by  the  most  zealous  advocate  of 
the  doctrine  of  free  trade.  But  every  local  advantage,  which 
may  result  from  the  interference  of  the  government  with  the 
natural  distribution  of  capital  and  labour,  must  necessarily  be 
at  the  expense  of  the  country  at  large.  Capital  wdll  not  only 
be  transferred  from  one  employment  to  another,  but  likewise 
from  one  part  of  the  country  to  another ;  or,  which  is  the 
same  thing,  it  wall  be  invested,  in  consequence  of  the  action  of 
the  government,  where  it  would  not  have  been  naturally  in- 
vested. If,  for  example,  the  tariff  regulations  of  the  United 
States  have  benefited  Rhode  Island  and  some  other  portions  of 
New  England,  the  Union,  taken  as  a  whole,  has  administered 
the  benefit.  It  would,  moreover,  have  been  well  had  the  loss 
and  gain  here  balanced  each  other.  But  since  the  natural 
distribution  of  the  capital  and  labour  of  the  community  is  the 


POLITICAL    ECONOMY.  259 

most  advantageous  distribution  of  them,  it  followsthat  the  loss 
must  have  been  more  than  equivalent  to  the  gain. 

Besides  the  augmented  investments  of  capital  in  a  particular 
section  of  a  country,  we  often  hear  the  increased  value  of  land 
in  it  cited  as  evidence  of  a  creation  of  wealth,  resulting  from 
the  restrictions  imposed  upon  foreign  commerce ;  and  I  mean 
here,  either  the  increased  value  of  the  land  on  which  no  addi- 
tional capital  has  been  applied,  or  its  increase  in  value  beyond 
what  would  be  determined  by  the  ordinary  profits  of  the  addi- 
tional capital  which  may  have  been  applied  to  its  cultivation. 
A  rise  like  this  in  the  value  of  the  land  is  a  consequence  of  its 
having  become  more  favourably  situated  in  respect  to  a  market 
for  its  produce,  by  means  of  the  denser  population  now  congre- 
gated in  its  vicinity.  In  as  much,  however,  as  the  wealth,  and 
therefore  the  population  of  the  country,  as  a  whole,  W'ill  not  be 
as  great  as  it  would  be  on  the  system  of  free  trade,  the  rise  of 
value  of  which  I  am  speaking,  will  have  been  accompanied  by 
more  than  a  corresponding  fall  of  value  elsewhere. 

It  has  been  stated  that  there  is  no  adv'ocate  of  a  free  trade 
among  nations  who  will  not  be  ready  to  admit  the  possibihty 
of  a  particular  section  of  a  country  profiting  by  those  very 
restrictions  on  the  freedom  of  trade  which  are  injurious  to  the 
country,  regarded  as  a  whole.  Some  ma}^,  however,  be  dis- 
posed to  argue  that,  because  the  whole  capital  of  a  country  is, 
in  such  a  condition  of  things,  less  profitably  invested,  or,  in 
other  words,  because  the  rate  of  profits  is  not  as  great  as  it 
would  otherwise  have  been,  capital  and  wealth,  and  therefore 
population  also,  will  not  increase  as  rapidly ;  and  a  period 
must  sooner  or  later  arrive,  when  every  portion  of  an  extensive 
country,  whatever  peculiar  adaptations  it  may  possess  for  the 
occupations  artificially  called  into  existence,  will  be  less 
wealtiiy  and  less  populous  than  it  would  then  be  if  things  had 
been  left  to  take  their  natural  course,  undisturbed  by  the  action 
of  the  government.  All  this  is  unquestionably  true.  Never- 
theless, those  adaptations  may,  in  certain  cases,  be  so  extraor- 


260  THE  PRINCIPLES  OF 

dinary  as  to  cause  the  anticipated  period  to  be  considerably 
postponed,  and  even  occasionally  postponed  to  such  an  extent 
as  to  justify  us,  for  all  practical  purposes,  in  overlooking  its 
advent  altogether.  A  few  localities  in  the  portion  of  the 
United  States  situated  north  of  the  Potomac  river  were 
placed  by  our  tariff  laws,  there  can  be  no  doubt,  in  the  predi- 
cament just  described. 

But  it  would  be  going  a  great  deal  too  far  to  maintain,  as 
others  have  done,  that,  notwithstanding  the  disadvantages  to 
which  the  country,  considered  as  a  whole,  has  been  subjected 
by  the  action  of  those  laws,  the  southern  states  were  the  only 
sufferers  in  the  case,  and  that  the  North  was  a  gainer,  although 
at  the  expense  of  the  South.  And  I  do  not  hesitate  to  say  that 
the  reader  will,  in  proportion  as  he  reflects  on  the  subject,  and 
especially  on  the  difficulty  of  transferring  capital  from 
the  southern  to  the  northern  states,  in  order  thereby  to  realise 
a  higher  profit,  be  more  and  more  satisfied  of  the  latter  having 
been  losers  by  the  tariff  system  as  well  as  the  former,  though 
not  in  an  equal  degree. 

We  often  hear  of  the  great  resources  of  our  country,  which, 
it  is  asserted,  require  to  be  developed  by  means  of  protective 
duties.  The  iron,  for  example,  of  Pennsylvania,  in  so  far  as  it 
is  rendered,  so  to  speak,  available  by  the  exclusion  of  foreign 
iron,  is  supposed  to  become  emphatically  a  source  of  wealth 
to  the  country;  while,  had  the  foreign  article  not  been 
excluded,  it  would  have  remained  in  the  bowels  of  the  earth, 
a  voluntary  and  gratuitous  sacrifice  of  national  wealth.  I 
need  scarcely  observe  that  all  this  is  inconsistent  with  the  prin- 
ciples which  have  been  already  explained.  If  the  iron  and 
other  materials  of  human  industry,  that  are  furnished  to  us  by 
the  iiand  of  nature,  cannot  be  wrought  into  the  state  required 
by  the  consumer  at  a  cost  equal  to,  or  less  than,  that  at  which 
the  finished  article  can  be  imported  from  abroad,  they  are  in 
reality  of  no  present  value  or  importance.  Is  it  then  a  matter 
of  no  consequence,  it  may  be  asked,  whether  a  country  is  pos- 


POLITICAL    ECONOMy.  261 

sessed  or  not  of  mines  or  beds  of  the  different  metallic  ores, 
or,  in  general,  of  what  is  commonly  designated  as  "  natural 
riches  ?"  I  reply  that  they  are,  on  the  supposition  made,  a 
desirable  possession,  in  reference  to  ihefuture  ;  and  this  simply 
because  of  the  possible  exhaustion,  in  process  of  time,  of  the 
more  economical  sources  of  supply, — or  because  of  the  possi- 
bility of  their  being  rendered  in  the  progress  of  the  arts,  on 
account  of  the  peculiar  circumstances  under  which  they  are 
found, — circumstances  at  present  of  no  importance, — the 
means  of  a  more  economical  supply  than  is  furnished  to  ua 
from  other  sources. 


CHAPTER  IX. 


THE  SAME  SUBJECT  CONTINUED. 


When  a  protective  duty  is  repealed,  the  branch  of  industry 
which  was  protected  by  it  can,  of  course,  no  longer  be  carried 
on  advantageously.  It  will  no  longer  yield  the  capitalist  the 
ordinary  rate  of  profits ;  and  he  will,  therefore,  transfer  his 
capital  to  other  employments.  Though  the  amount  of  the  duty 
had  been  comparatively  inconsiderable,  his  interests  will,  in 
most  cases,  have  been  affected  injuriously  by  its  repeal,  owing 
to  the  impracticability  of  transferring  his  capital  from  one 
employment  to  another  and  dissimilar  one,  without  sacrificing 
the  more  fixed  portion  of  it.  Had  the  duty  been  a  high  one, 
he  might  even  be  impoverished  by  the  protection  which  it 
afforded  him  being  suddenly  withdrawn.  And  not  the  capi- 
talist only,  but  the  labourers  also,  who  are  in  his  employ,  aie 
necessarily  subjected  to  loss,  and  frequently  to  much  distress, 
by  a  repeal  of  protective  duties.    They  find  at  least  an  equal 

34 


262  THE  PKINCIPLES  OP 

difficulty  in  transferring  their  labour  from  occupation  to 
occupation,  as  do  their  employers  in  the  transfer  of  their 
capital ;  and  besides,  the  transfer  of  this  capital,  implying,  as 
it  does,  the  conversion  to  a  certain  extent  of  circulating  into 
fixed  capital,  cannot  fail  to  deteriorate  for  a  time  the  condi- 
tion of  the  labourers  generally,  by  diminishing  the  amount  of 
their  wages.  Again,  if  extraordinary  facilities,  by  the  removal 
of  the  duties  imposed,  be  suddenly  afforded  to  the  importing  of 
commodities  from  abroad,  a  flow  of  specie  will  take  place 
from  the  country  in  question  to  all  others,  in  the  manner 
previously  explained  ;  which,  in  its  turn,  will  lead  to  a  sudden 
contraction  of  the  circulating  medium,  and  to  all  the  evils 
accompanying  every  such  contraction. 

On  the  contrary,  when  protective  duties  are  first  exacted,  no 
corresponding  inconvenience  or  distress  is  apparent,  especially 
in  a  country  where,  as  in  the  United  States,  most  of  the  com- 
modities exported  are  produced  in  very  considerable  quantities. 
While  the  necessity  of  paying  the  duties  will  induce  a  dimin- 
ished importation  by  the  merchants  of  commodities  from 
abroad,  the  exports,  it  is  true,  will  also  undergo  a  proportional 
diminution  ;  but  this  will  not,  it  must  be  obvious,  take  place  as 
suddenly  as  that  of  the  imports.  There  will  be  some  time 
during  which  the  changes  before  described,  as  intervening 
between  the  diminution  of  the  imports  and  the  consequent 
diminution  of  the  exports,  will  occur ;  which  interval  of  time 
will  have  the  effect,  in  only  a  comparatively  slight  degree 
however,  of  concealing  from  our  view  the  injurious  results. 
Where,  too,  the  exports  diminished  are  chiefly  of  such  com- 
modities as  are  extensively  produced  in  the  country, — cotton, 
flour,  or  tobacco,  for  example, — the  inconvenience  incurred 
will  be  so  diflused  as  not  to  be  felt  as  injuriously  as  it  would 
otherwise  be,  and,  on  this  account,  not  to  proclaim  itself  so 
unequivocally  to  the  observer.  Moreover,  when  the  duties 
under  consideration  are  first  exacted,  a  flow  of  specie  into  the 
country  will   result  from  the  imports  becoming  less  than 


POLITICAL  ECONOMY.  263 

before ;  and  the  circulating  medium  will,  for  a  time,  be 
expanded,  instead  of  contracted,  as  it  would  be  if  those  duties 
were  to  be  repealed. 

There  are  many  individuals,  of  sufficient  sagacity  in  other 
respects,  who,  in  place  of  realising  to  their  full  extent  the  evils 
of  a  sudden  change  in  the  existing  system  of  things,  even 
though  it  be  in  a  right  direction,  and  endeavouring  to  mitigate 
those  evils  by  passing  gradually,  instead  of  suddenly,  from  the 
system  of  restriction  to  that  of  free  trade,  attribute  the  evils 
in  question  to  the  latter  system,  and  deaounce  it  accordingly, 
as  calculated,  more  than  ai^y  other  device  which  its  enemies 
could  invent,  to  be  r-uinous  to  the  country  into  which  it  is 
introduced.  Without  doubt,  every  change  of  the  kind  now 
under  consideration  should  be  of  a  gradual  nature,  not  only 
that  time  may  be  allowed  for  the  transfers  of  capital  and 
labour  to  be  effected,  but  likewise,  I  may  add,  in  order  to 
take  away  from  such  individuals  as  those  above  alluded  to,  as 
well  as  from  some  of  the  mere  cavillers  against  the  conclu- 
sions of  the  political  economist,  the  appearance  of  an 
argument  against  them,  as  being  contradicted  by  practice ; 
however  beautiful,  or  even  correct  in  theory  they  sometimes, 
very  strangely,  admit  them  to  be. 

Very  little  needs  be  said  concerning  the  argument  against 
the  abolition  of  restrictions  upon  commerce,  founded  on  the 
the  supposed  rights  of  the  individuals  who  have  invested  their 
capital  and  labour  in  occupations  which  owe  their  existence 
to  such  restrictions, — or  concerning  the  obligation  which  the 
government  of  a  country  is  under  to  protect  those  rights,  by 
maintaining  undisturbed  all  existing  investments.  If  this  were 
to  be  conceded,  we  ought,  in  order  to  maintain  our  consistency, 
also  insist  upon  the  interposition  of  the  government,  not  to 
encourage  the  introduction  of  improvements  in  the  arts,  as  it 
is  in  the  habit,  in  most  civilised  countries,  of  doing,  by  the 
granting  to  inventors  certain  exclusive  privileges,  but  to  check, 
to  the  full  extent  of  their  power,  the  career  of  improvement ; 


264  THE  PRINCIPLEg  OP 

for  it  is  plain  that  nothing  of  the  sort  can  possibly  occur  with- 
out less  or  more  of  injury  to  some  portion  of  the  labour  and 
capital  of  the  community.  On  this  view  of  the  subject  too, 
steamboats  should  never  have  been  permittted  to  supersede  the 
various  other  sorts  of  craft  which  in  times  past  used  to  navi- 
gate our  rivers ;  nor  should  the  proprietors  of  turnpike  stock, 
or  of  horses  and  wagons,  have  been'  subjected  to  any  incon- 
venience or  loss,  by  the  construction,  in  so  many  different 
directions,  of  canals  and  rail  roads.  It  ou«-ht  always,  indeed, 
to  be  borne  in  mind  that  the  removal  of  all  such  restrictions 
on  man's  liberty,  as  have  heretofore  prevented  the  full 
exercise  of  his  productive  powers,  is  perfectly  analogous  in 
its  effects  to  the  inventing  of  more  efficient  machinery,  or  the 
discovery  of  new  and  more  advantageous  processes  in  the 
arts.  And  the  obligations  of  the  government  are  the  same 
precisely  in  the  one  case  as  in  the  other. 

I  must  not  forget  an  argument  which  has,  not  unfrequently, 
been  urged  in  favour  of  the  legislative  encouragement  of 
different  kinds  of  manufactures  in  the  United  States ;  the 
argument,  to  wit,  that  their  introduction  into  the  country  gives 
employment  to  a  considerable  number  of  women  and  children, 
who  would  otherwise  be  idle, — and  that  the  products  of  their 
industry  are,  on  this  account,  to  be  regarded  as  a  clear 
national  gain.  This  argument  may  be  met  by  once  more 
stating  the  fact,  that,  when  a  government  undertakes  to  encou- 
rage any  particular  branch  of  industry,  it  does  not  create  an 
additional  amount  of  capital,  but  only  causes  a  certain  portion 
of  the  capital  already  existing  to  be  transferred  from  one 
employment  to  another, — as  well  as  by  tracing  the  consequen- 
ces flowing  from  this  fact.  Since  the  whole  amount  of  capital 
continues  unaltered,  and,  agreeably  to  what  has  been  already 
shewn,  is  employed  less  productively  than  it  was  before,  it  is 
absolutely  impossible  that  the  circumstance  of  a  number  of 
the  women  and  children  of  the  country  being  provided  with 
occupation  by  the  manufacturers  should  in  any  way  promote 


POLITICAL  ECONOMY.  265 

the  progress  of  national  wealth.  We  may  even  pronounce 
the  labour  of  these  women  and  children  to  be  a  positive  evil 
to  society,  and  also  to  themselves,  because  the  vi'hole  labour 
applied  under  the  system  of  encouragement  is  less  productive 
than  the  whole  labour  applied  before  the  adoption  of  that 
system. 

But  as  the  argument,  now  under  examination,  has  occa- 
sionally been  very  strenuously  insisted  on  by  the  advocates 
among  us  of  a  high  tariff  of  duties,  I  will  present  the  refutation 
of  it  in  another  point  of  view.  So  long  as  the  same  amount  of 
capital  exists  in  the  country,  so  long  will  the  portion  of  it  con- 
sisting of  wages  continue  unaltered ;  that  is,  if  we  assume 
wages  in  ever}^  employment  to  bear  the  same  proportion  to 
the  whole  amount  of  capital.  On  this  supposition,  the  wages 
paid  to  any  class  of  persons,  who  were  heretofore  unemployed, 
will  have  to  be  taken  from  the  wages  of  those  who  were  here- 
tofore the  only  labourers.  Hence,  in  the  case  before  us,  even 
if  we  suppose  the  men  out  of  a  given  population  to  labour  as 
much  as  they  did,  what  they  receive  for  their  labour  will  have 
been  diminished  by  the  amount  handed  over  to  the  women  and 
children.  And  if  a  refuge  be  sought  from  the  consequence 
just  deduced,  of  the  diminution  of  the  wages  of  men's  labour, 
by  gratuitously  supposing  the  men  not  to  work  as  much  as  they 
did  before,  very  little  will  have  been  gained  in  support  of  the 
argument  urged.  Few  persons  will  be  disposed  to  admit  the 
mere  substitution,  in  any  degree,  of  the  labour  of  women  and 
children  for  that  of  the  adult  male  population  to  be  productive 
of  a  national  gain.  But  the  supposition  which  I  have  made, — 
that  the  wages  of  labour  bear  the  same  proportion  in  every 
employment  to  the  whole  capital  applied, — is  incorrect.  In 
some  employments  this  proportion  is  a  very  considerable  one  ; 
in  others,  the  case  is  the  reverse.  Since,  however,  any  diver- 
sity of  the  kind  furnishes  no  inducement,  as  has  been  proved, 
why  we  should  prefer  any  one  branch  of  industry  to  another, 
and  why  the  distribution  of  the  capital  of  a  country  shall 


266  THE  PRINCIPLES  OP 

become  different  from  what  it  was,  we  may,  for  our  present 
purposes,  manifestly  reason  as  if  the  supposition  made  were 
strictly  true. 


CHAPTER  X. 

EFFECTS   OF  BOUNTIES — MODIFICATIONS    OF  THE    SYSTEM    OF   FREE 

TRADE. 

Hitherto  I  have  been  treating  of  the  effects  of  duties 
imposed  on  the  importation  of  commodities  from  abroad,  as  if 
such  duties  were  the  only  means  of  encouraging  the  domestic 
production  of  the  like  commodities.  But  the  fact  is  otherwise. 
The  encouragement  required  may  be  administered  by  the 
granting  of  a  bounty  to  the  domestic  producer ;  that  is,  by 
directly  taxing  the  community  at  large  for  his  benefit.  In  as 
much  as  his  profits  cannot  eventually  be  more  than  the  ordi- 
nary profits  received  in  other  occupations  generally,  it  is 
evident  that  the  bounty  which  is  of  an  amount  just  sufficient 
to  enable  him  to  realise  those  profits  will  be  a  national  loss, 
without  any  compensating  gain  ;  or,  in  other  words,  a  bounty 
of  this  description  will  have  precisely  the  same  ultimate  effect 
as  a  duty  to  an  equal  amount  on  the  foreign  commodity 
imported. 

The  nature  and  operation  of  a  bounty  being  once  properly 
understood,  there  is  no  one  who  will  hesitate  to  put  aside 
without  any  farther  discussion  every  objection  to  the  system 
of  free  trade,  in  reference  to  the  United  States,  which  is 
founded  on  the  supposed  expediency  of  countervailing  the 
effects  of  a  bounty,  granted  to  certain  producers  by  the 
government  of  Great  Britain,  or  any  other  foreign  government, 


POLITICAL   ECONOMY.  267 

—or  who  will  refuse  to  apply  to  the  case  of  the  natural  distribu- 
tion of  labour  and  capital  being  disturbed  by  the  granting  of 
bounties,  all  that  has  been  delivered  in  the  preceding  chapters 
of  the  present  book  concerning  the  disturbances  of  the  natural 
order  of  things  by  the  imposition  of  duties. 

It  may  be  remarked  that,  notwithstanding  the  almost  obvious 
analogy  just  pointed  out  between  bounties  and  duties,  many 
persons  among  us,  who  are  not  backward  in  expressing  their 
opposition  to  a  system  of  bounties  for  the  encouragement  of 
American  manufactures,  are  yet  earnest  advocates  for  encou- 
raging them  by  a  high  tariff  of  duties.  The  national  detriment 
is  co.mparatively  easy  to  be  perceived  in  the  former  case.  In 
the  latter,  the  effect  produced  taking  place  more  indirectly, 
the  judgment  of  the  parties  adverted  to  is  more  apt  to  be 
imposed  upon  by  the  superficial  notions  on  the  subject  almost 
every  where  to  be  met  with. 

Every  argument  in  favour  of  a  protecting  tariff  which  I 
deem  to  be  unsound,  and  which  at  the  same  time  has  some 
appearance  of  plausibiltiy,  has  been  passed  over  in  review ; 
and  I  shall  now  proceed  to  a  statement  of  some  reasons  why 
I  conceive  a  modification  of  the  general  principle  of  free  trade 
is  sometimes  admissible  to  a  certain  extent. 

Most  of  these  are  founded  on  the  expediency  of  guarding 
against  the  "  evils  of  change," — an  expediency  which  has  been 
already  adverted  to.  The  chief  source^too,  of  such  evils,  is  a 
frequent  transition  from  a  state  of  peace  to  a  state  of  war,  or, 
vice  versa,  from  a  state  of  war  to  a  state  of  peace,  and  espe- 
cially the  latter.  As  an  illustration,  take  the  case  of  our  own 
country;  and  let  us  look  at  the  efiects  which  ensued  in  respect 
to  the  distribution  of  cq(^tul,  on  the  declaration  of  war  in 
1812  against  Great  Britain,  and  again  on  the  return  of  peace 
in  1815.  Previous  to  the  first  mentioned  event,  the  legislative 
encouragement  of  American  manufactures  was,  as  every  one 
knows,  comparatively  small ;  and  it  was  found  more  profitable 
to  procure  most  manufactured  articles  from  abroad  in  exchange 


THE  PRINCIPLES  OP 


for  the  agricultural  products  of  the  country,  rather  than  under- 
take to  produce  them  at  home.  But  the  war,  by  cutting  off 
to  a  considerable  extent  the  commerce  with  foreign  nations, 
altered  the  condition  of  things  very  materially.  This  natural 
effect  too,  of  a  state  of  war,  was  aggravated,  in  the  instance 
under  consideration,  by  the  overwhelming  power  of  our  enemy 
on  the  ocean,  as  well  as  by  the  doubling  of  the  duties  on 
imports,  for  the  purpose  of  revenue,  which  then  took  place. 
Manufactures,  thus  powerfully  encouraged,  sprang  into 
existence  in  the  northern  and  middle  states,  where,  for  various 
reasons,  the  most  advantageous  situations  for  them  existed. 
Now,  on  the  return  of  peace,  and  the  consequent  repeal  of  the 
double  duties,  there  was  necessarily  a  reaction.  Much  of 
the  capital  and  labour  which  had  been  invested  in  manufac- 
tures was  transferred  to  other,  and,  at  the  time,  more 
profitable  employments, — a  transfer,  implying,  of  course,  a 
considerable  abandonment  or  loss  of  capital,  together  with 
great  inconvenience  and  distress  among  both  the  capitahsts 
and  the  labourers  who  were  thrown  out  of  their  employ,  and 
who  could  not  readily  adapt  themselves  to  occupations  having 
often  little  or  no  analogy  with  those  to  which  they  had  been 
accustomed. 

There  was  another  circumstance  which,  in  a  very  great 
degree,  augmented  the  sufferings  of  the  community  in  general, 
at  the  period  referred  to.  I  mean  the  sudden  enhancement  of 
the  value  of  money  resulting  from  the  extraordinary  importa- 
tion of  commodities  other  than  money  from  abroad,  unac- 
companied by  a  corresponding  augmentation  of  the  amount 
of  exports.  Why  a  change  of  this  description  in  the  value 
of  money  should  be  productive  of  evil,  needs  not  to  be  here 
repeated.  It  has  been  sufficiently  explained  in  the  preceding 
book.  The  only  point  now  calling  for  remark  is  the  fact, 
that  the  imports  into  the  country,  at  the  peace,  were  aug- 
mented in  a  greater  proportion  than  were  the  exports  from  it. 
This  was  owing,  in  my  opinion,  to  two  distinct  causes.    First, 


POLITICAL  ECOXOMY,  269 

the  ordinary  exports  from  the  United  States  were,  perhaps, 
more  indispensable  to  foreign  countries,  Great  Britain 
particularly,  than  our  imports  from  them  were  to  us.  It 
happened,  therefore,  very  naturally,  that  those  countries,  on 
the  interruption  of  their  commercial  intercourse  with  us,  made 
new  investments  of  capital,  even  to  a  greater  extent  than  was 
done  by  ourselves,  in  order  that  they  might  be  supplied  with 
what  they  most  wanted  :  such  new  investments,  also,  they  were 
not,  by  any  means,  as  willing  to  disturb  as  we  were.  And 
secondly,  for  several  years  previous  to  the  commencement  of 
the  war,  and  in  a  measure  during  that  period,  British  manu- 
factures had  been  excluded  from  the  continent  of  Europe. 
They  accumulated,  in  consequence,  in  the  hands  of  the 
manufacturers  at  home ;  who,  rather  than  undergo  the 
inconvenience  of  transferring  their  capitals  to  other  employ- 
ments, continued  to  manufacture,  in  anticipation  of  the  vent 
for  their  products  which  a  peace  must  sooner  or  later  open 
to  them.  Accordingly,  when  peace  at  length  did  return,  the 
accumulated  mass  was  poured  into  America ;  every  manu- 
facturer and  merchant  acting  as  if  every  other  were  not 
doing,  or  were  not  likely  to  do,  just  what  he  did ;  and  thus 
glutting  our  market,  so  as,  on  the  one  hand,  to  cause  prices 
to  fall  ruinously  low  to  the  parties  concerned,  and,  on  the 
other,  to  induce  a  flow  of  our  specie  to  Great  Britain,  greater 
still  than  would  otherwise  have  occurred, — and  this,  too, 
when  the  banks  of  the  country  had  suspended  specie  pay- 
ments, and  when  it  was  desirable  they  should  make  every 
exertion  possible  for  the  purpose  of  resuming  them. 

Although  some  of  the  circumstances  which  gave  occasion 
to  the  pecuniary  disasters  of  1815  and  the  immediately 
succeeding  years  were  of  a  peculiar  nature,  and  not  at  all 
hkely  to  occur  again,  at  least  to  occur  again  in  any  thing 
like  the  same  degree,  it  is  quite  obvious  that  causes  oi  such 
disasters  will  be  in  action  sufficiently,  at  every  conclusion  of 
a  war,  to  furnish  an  argument  to  the  advocates  of  a  protec- 

35 


270  THE  PRINCIPLES    OF 

tive  tariif.  This  argument  will,  besides,  gain  force  exactly 
according  to  the  probable  frequency  of  the  changes  from 
peace  to  war,  and  again  from  war  to  peace.  We  might, 
indeed,  suppose  these  changes  to  take  place  so  very  frequently 
as  to  justify  the  enactment,  by  our  government,  of  as  high  a 
tariff  of  duties  as  any  which  the  advocates  for  the  legislative 
encouragement  of  domestic  manufactures  have,  at  any  period 
of  our  history,  ventured  to  propose  as  a  means  of  protection 
for  the  branches  of  industry  that  have  been  called  into  exist- 
ence during  a  state  of  war.  And  it  must  be  evident  that 
persons,  who  are  perfectly  agreed  with  respect  to  the  general 
principles  of  political  economy,  may  yet  differ,  and  perhaps 
even  considerably  differ  from  each  other,  in  the  amount  of 
duty  which  it  is  expedient  to  impose  for  the  purpose  of  giving 
a  greater  stability  to  the  employments  of  capital, — according  to 
the  different  estimates  they  may  form  of  the  probable  frequency 
of  the  occurrence  of  the  changes  in  question. 

Taking  things  as  they  are,  and  looking  at  the  future  pros- 
pects of  the  country,  not  only  by  the  hght  of  past  experience, 
but  also  by  that  which  is  reflected  to  us  from  a  survey  of  the 
subsisting  international  relations  of  the  civilised  world,  there 
are  probably  few  political  economists  vi^ho  would  hesitate  to 
give  their  assent  to  the  imposition  of  a  duty  of  s^y  five  per 
cent,  upon  the  value  of  a  foreign  commodity  on  its  being  im- 
ported into  the  country ;  such  a  duty  being  adequate  to  the 
exclusion  of  it  altogether,  and  adequate  therefore  to  the 
effective  encouragement  of  the  rival  American  article.  That 
which  before  could  be  procured  for  twenty  dollars  will,  in 
this  event,  require  twenty-one  dollars  to  procure  it ;  and  if 
we  suppose  the  whole  value  previously  consumed  by  us  to 
have  been  a  million  of  dollars,  and  suppose  farther  the  quantity 
consumed  to  continue  the  same  as  it  was,  the  entire  additional 
cost  will  amount  to  $50,000,  or  rather  to  something  less  than 
this  sum,  because  the  duty  imposed,  that  it  may  be  effectual 
for  the  purpose  intended,  should  always  exceed,  as  has  been 


POLITICAL  ECONOMY.  271 

shewn,  the  difference  in  the  cost  of  the  articles,  domestic  and 
foreign.  On  the  suppositions  which  have  been  made,  I  need 
not  say  that  such  additional  cost  would  be  the  measure 
of  the  national  loss  or  sacrifice  incurred,  for  obtaining 
the  advantages  of  a  greater  degree  of  stability  in  the  distri- 
bution of  the  capital  and  labour  of  the  community.  One  of 
those  suppositions,  however,  does  not  correspond  with  the 
actual  facts  of  the  case,  to  wit,  that  the  quantity  of  the  article 
consumed  will  remain  unaltered.  When  prices  rise,  which 
they  will  do  when  the  cost  of  production  is  greater  than  it 
was,  almost  every  person  will  be  disposed  to  consume  less 
than  he  did  before ;  and  some  will  even  cease  altogether  to 
consume  the  articles  in  question.  Hence  the  national  loss  has 
been  estimated  above  at  too  high  a  rate.  But  the  proper 
estimate  will  not  be  equivalent  simply  to  five  per  cent,  on  the 
whole  value  actually  consumed.  It  is  evident  that  to  this  must 
be  added  all  the  inconvenience,  or  diminution  of  enjoyment, 
suffered  by  that  portion  of  the  community  who  have  been 
induced,  by  the  rise  of  prices,  to  dispense  with  some  of  thp 
articles  which  they  were  heretofore  in  the  habit  of  buying,  and 
to  consume  in  their  stead  what,  but  for  this  rise  of  prices, 
they  would  not  have  preferred  ;  so  that  the  loss  incurred  may, 
notwithstanding,  sometimes  approach  to  our  first  estimate 
of  it. 

In  respect  to  many  commodities,  it  is  quite  possible  that 
political  economists  might  be  nearly  as  unanimous,  were  th,e 
duty  proposed  one  of  ten,  in  place  of  five  per  cent,  ad  valorem. 
When,  however,  we  come  to  a  still  higher  duty  than  ten  per 
cent.,  the  dissentients  among  the  class  of  individuals,  of  whom 
I  am  speaking,  will  soon  become  exceedingly  numerous.  And 
my  readers  need  not  \o  be  told  that  duties  of  fifty  or  a  hundred 
per  cent, — duties  implying  a  sacrifice  of  national  wealth  in  a 
year  or  two  equal  in  value  to  the  entire  annual  consumption  by 
the  community  of  the  commodities  taxed, — cannot  but  be 
regarded  a,s  a  legislative  absurdity. 


272  THE  PBINCIPLES  OF 


CHAPTER  XT. 

OF    THE    MOST    EXPEDIEXT     SCALE    OF    DUTIES — INTERFERENCES 
WITH  THE  SYSTEM  OF   FREE  TRADE  FARTHER  CONSIDERED. 

Granting,  for  the  present,  the  expediency,  for  the  reason 
which  has  been  assigned,  of  imposing  a  certain  amount  of 
duty  on  the  imports  into  a  country,  with  a  view  to  the  encour- 
agement of  particular  branches  of  industry,  there  is  a  reason 
why  the  same  ad  valorem  duty  should  be  imposed  on  every 
commodity  imported  from  abroad ;  and  this  is,  impartiality  in 
the  system  of  legislation  with  respect  to  individuals,  or  classes 
of  individuals.  If  the  government  act  steadily  on  the  plan 
suggested,  its  action  can  scarcely  fail  to  be  guided  exclusively 
by  a  view  to  the  general  welfare.  However  urgent  any  one 
class  of  influential  capitalists  may  be  in  their  applications  for 
farther  encouragement,  a  practical  difficulty  in  the  attain- 
ment of  their  object  will  be  presented  by  the  necessity  of 
imposing  an  additional  duty  on  every  thing  else  imported,  as 
well  as  on  the  foreign  commodity  which  comes  into  compe- 
tition with  the  products  of  their  industry.  Under  these 
circumstances,  the  representatives  of  the  people, — wherever 
the  assent  of  such  representatives  is  a  necessary  preliminary 
to  taxation, — will  be,  evidently,  much  less  disposed  to  comply 
with  the  wishes  of  the  applicants,  than  if  their  case  was  the 
only  one  upon  which  they  were  called  upon  to  decide.  It  may 
be  added  that  a  system  of  legislation,  so  simple  as  that  now 
under  consideration,  would  have  moreover  this  advantage, 
that  it  would,  perhaps  more  than  any  other  device  which 
could  be  imagined,  have  the  effect  of  preserving  the  purity  of 
the  legislative  body.  If  the  motive  for  bribing,  or  otherwise 
corrupting  the  integrity  of  the  members,  would  still  exist  in  its 
usual  force,  the  members  will  not  so  readily  consent  to  be 


POLITICAL  ECONOMY.  273 

corrupted  or  bribed.  The  debasing  practice  too,  of  certain 
interests,  not  naturally  allied  to  each  other,  combininn-  together, 
in  order  by  their  united  influence  to  obtain  their  private  or 
local  ends,  at  the  expense  of  the  people  generally, — a  practice 
to  which,  among  ourselves,  has  been  affixed  the  eleo-ant 
appellation  of  log-rolling, — would  but  seldom  meet  witli  suc- 
cess, and  would  therefore  fall  into  comparative  desuetude. 
We  would,  in  short,  enjoy  all  the  moral,  as  well  as  the  physical 
advantages,  of  a  system  of  legislation  having  general  and  not 
special  purposes  in  view. 

If  a  uniform  ad  valorem  duty  be  imposed  on  every  com- 
modity imported  from  abroad,  two  consequences  must 
invariably  ensue  when  the  existing  rate  of  duty  is  raised  ;  in 
the  first  place,  a  greater  degree  of  encouragement  will  be 
yielded  to  the  domestic  producers, — and  secondly,  the  public 
revenue  will  be  altered  in  amount.  I  say  altered,  and  not 
augmented  in  amount,  because,  although  in  every  instance  of 
an  extensive  addition  to  the  tariff  of  duties  in  the  United 
States  the  revenue  has  become  greater  than  it  was  before,  we 
may  easily  conceive  of  the  duties  on  foreign  goods  to  be 
advanced  to  so  high  a  rate  as  to  constitute  a  bar  to  all  importa- 
tion whatever  from  abroad,  and  therefore  to  exhaust  altogether 
the  source  of  revenue.  And  hence,  it  is  plain,  that  the  public 
revenue  may,  under  different  circumstances,  be  either 
augmented  or  diminished  by  raising  the  general  rate  of 
duties. 

Now  let  us  suppose,  what  will  appear  from  the  foregoing 
remarks  to  be  quite  possible,  that,  v.hen  the  rate  of  duties  is 
rendered  just  high  enough  to  furnish  an  adequate  revenue,  the 
expedient  degree  of  encouragement  or  protection  is  not 
afforded  to  the  domestic  producers, — a  state  of  things,  how- 
ever, not  very  likely  to  take  place  in  this  country.  Here  we 
would  be  necessarily  forced  to  abandon  the  ad  valorem 
system  of  protection,  and  to  impose  in  certain  cases  an  unequal 
rate  of  duty.     And  the  question  occurs ; — If,  for  the  reason  at 


274  THE    PRINCIPLES  OP 

present  assigned,  or  for  any  other  reason,  unequal  protective 
duties  are  to  be  imposed,  what  principle  ought  to  guide  us  in 
proportioning  to  each  other  the  different  items  of  the  tariff?  Or, 
in  other  words,  why  should  one  commodity  be  taxed  higher, 
and  another  lower  1  I  will  only  reply  in  general  terms,  that 
those  branches  of  industry  which  are  productive  of  the  means 
of  the  national  defence  against  foreign  aggression,  or  of  the 
necessaries  of  life,  deserve  to  receive  the  aid  of  the  legisla- 
ture in  a  greater  degree  than  others,  all  other  circumstances 
being  the  same ;  for  the  inconveniences  suffered  by  the  com- 
munity in  consequence  of  a  deprivation,  or  partial  deprivation, 
of  the  articles  adverted  to,  in  a  period  of  war,  would  obviously 
be  greater  than  would  be  suffered,  were  they  to  be  deprived 
for  a  season  of  luxuries  merely. 

After  what  has  been  observed  concerning  the  efiects  of  a 
transition  from  a  state  of  peace  to  a  state  of  war,  and  the 
reverse,  upon  the  distribution  of  the  capital  and  labour  of  a 
country,  my  readers  will  be  disposed  to  think  with  me  that  the 
greatest  obstacle  now  existing  among  the  civilised  nations  of 
the  earth,  to  the  general  introduction  of  the  system  of  free 
trade,  is  the  doctrine,  so  universally  practised  upon,  that  the 
property  belonging  to  individuals  of  a  nation  at  war  with 
another  may  be  lawfully  captured,  and  become  the  property 
of  the  latter,  or  of  captors  deriving  from  the  government  of 
the  latter  their  authority  to  rob  on  the  great  highway  of  the 
ocean.  This  transfer  by  a  government  to  privateers  of  its 
assumed  privilege  to  prey  on  the  property  of  its  enemies  is 
generally  considered,  and  perhaps  properly  so,  to  be  a  more 
aggravated  iniquity  than  for  it  to  do  the  same  act  by  the 
direct  exertion  of  its  own  power ;  and  on  this  account  it  is 
that  tho  expediency  and  means  of  abolishing  the  practice  qi 
privateering  has  been  frequently  drawn  into  discussion  among 
diplomatists,  and  its  abolition  even  in  one  or  two  instances 
stipulated  for  by  treaty.  We  may  be  permitted  to  hope  that 
with  the  still  farther  progress  of  the  nations  in  the  career  of 


FOLITICAL  ECONOMY.  275 

civilisation,  this  detestable  system  of  legalised  piracy  will 
cease  to  be  a  disgrace  to  humanity.  But  the  philanthr#pist 
ought  to  aim  at  something  beyond  this.  Indeed,  he  ought  not  to 
stop  short,  so  long  at  least  as  he  is  not  satisfied  of  the  object 
proposed  being  a  moral  impossibility,  of  the  estabhshment  of 
the  same  degree  of  respect  for  the  rights  of  private  property 
on  the  ocean  as  on  the  land.  The  preponderating  naval  power 
of  Great  Britain,  it  must  be  confessed,  renders  at  the  present 
moment  the  anticipation  of  the  occurrence  of  such  a  state  of 
things  almost  Utopian.  It  is  not  be  expected  that  she  will 
consent  to  yield  up  voluntarily,  as  a  sacrifice  to  the  general 
welfare  of  mankind,  any  portion  of  her  means  of  annoying  her 
enemy  in  war,  without  some  compensating  gain.  In  this 
point  of  view,  her  overgrown  navy  cannot  but  be  regarded 
as  a  nuisance  of  peculiar  magnitude.  All  other  nations  should 
exert  themselves,  in  every  just  and  expedient  mode,  to  abate 
it.  And  what  would  be  productive  of  an  approach  at  least 
to  the  result  desired,  in  reference  to  the  matter  now  before  us, 
they  should  likewise  combine  together  to  obtain  the  recogni- 
tion universally,  in  opposition  to  the  present  British  doctrines 
and  practice,  of  the  principle  that  "  free  ships  make  free 
goods,"  or  that  "  the  flag  of  a  neutral  covers  the  property  of 
an  enemy,"  as  well  as  of  the  principles  of  "  strict  blockade." 

Transitions  from  a  state  of  peace  to  a  state  of  war,  and  the 
reverse,  are  not  the  only  changes  giving  rise  to  sudden  and 
frequent  transfers  of  capital  and  labour  from  one  employment 
to  another.  It  might  occasionally  be  very  desirable  to  counter- 
vail, to  a  certain  extent,  the  varying  legislation  of  other  nations, 
by  a  corresponding,  though  temporary,  modification  of  our 
own  tariflf  laws.  To  illustrate  my  meaning,  let  us  suppose  the 
government  of  Great  Britain  to  grant  to  the  producers  of 
cotton  goods  so  large  a  bounty  as  to  enable  them  to  have  the 
advantage  in  every  description  of  such  goods,  over  the  Ameri- 
can producer,  in  the  market  of  the  United  States.  The  effect 
of  this  will  be  to  cause,  in  both  countries,  a  considerable 


276  THE  PRINCIPLES  OP 

alteration  in  the  distribution  of  labour  and  capital.  If  this 
Stat*  of  things  were  to  continue,  a  benefit  will  have  been 
bestowed  upon  us  by  the  British  government.  We  would  be 
gainers  by  the  diminished  cost  of  procuring  manufactured 
cottons.  For  a  time  however,  while  the  transfers  of  labour 
and  capita]  w^ere  going  on,  much  inconvenience,  and  even 
distress,  would  be  experienced  by  both  capitalists  and  labourers. 
To  render  those  transfers  more  gradual  than  they  would  other- 
wise occur,  and  thereby  to  alleviate  the  sufferings  of  the  parties 
injuriously  affected,  if  not  to  remove  them  almost  entirely, 
nothing  more  would  be  requisite  than  to  grant  a  like  bounty 
to  the  American  manufacturer  as  the  one  granted  abroad,  or 
to  impose  an  equivalent  duty  on  the  foreign  commodity  when 
imported  into  the  country ;  which  bounty  or  duty  could  be 
then  diminished  at  intervals,  until  it  should  be  entirely  repealed. 
By  making  in  this  manner  a  temporary  sacrifice,  for  the  purpose 
of  warding  off  to  a  certain  extent  from  a  portion  of  the  commu- 
nity the  "  evils  of  change,"  the  sum  of  the  public  enjoyment  or 
happiness  might,  all  things  considered,  be  rendered  greater  than 
it  would  otherwise  be.  There  is,  however,  an  objection  which 
the  advocates  of  free  trade  would  prefer  against  the  adoption 
of  the  suggested  course  of  legislation,  and  which  it  is  proper 
should  be  stated  here.  In  almost  every  country,  the  parties  of 
free  trade  and  of  restriction  are  arrayed,  more  or  less  for- 
mally, against  each  other  ;  and  for  the  former  to  yield  ground 
to  the  latter,  even  with  the  intention  and  understanding  of  its 
being  resumed,  after  a  short  period  shall  have  elapsed,  might 
be  deemed  by  them  to  be  too  hazardous  a  measure.  They 
might  find  it  much  easier  to  impose  a  duty  or  bestow  a  bounty, 
than  to  withdraw  it  when  once  existing. 

Should  the  government  of  Great  Britain,  instead  of  granting 
a  bounty  to  the  producer  in  that  country  of  a  commodity, 
with  a  view  to  enable  him  to  obtain  for  it  the  command  of  the 
foreign  market,  do  the  contrary  of  this,  that  is,  should  it 
recall  a  bounty  heretofore  granted  by  it,  and  which  had  con- 


POLITICAL  ECONOMY.  277 

ferred  on  the  British  producer  the  power  of  supplying  the 
foreign  market,  or  say,  more  particularly,  the  market  of  the 
United  States, — a  power  he  did  not  before  possess, — a  transfer 
of  American  capital  and  labour  will  take  place,  as  on  the 
previous  supposition ;  but  being  taken  from  the  capital  and 
labour  of  the  country  generally,  the  temporary  inconvenience 
resulting  in  any  one  branch  of  industry  will  hardly  be  per- 
ceptible, and  no  legislation  will  be  necessary  to  lessen  it. 

But  next,  let  the  British  government,  after  having,  in  the 
manner  just  described,  called  American  manufactures  into 
existence,  retrace  its  steps,  and  restore  the  bounty  which  had 
been  repealed.  By  so  doing,  those  manufactures  may  be  quite 
as  speedily  annihilated  as  they  were  at  first  established.  And,  if 
the  government  of  our  own  country  remain  all  the  while  a  pas- 
sive spectator  of  what  is  going  on,  it  is  clear  that  this  twofold 
process  may  be  continually  repeated  to  the  great  injury  of  our 
people.  It  is  true  that  neither  the  British,  nor  any  other 
government,  is  likely  to  act  in  the  contradictory  manner  above 
described  ;  since  they  could  not  do  so  without  occasioning  a 
similar  injury  to  their  own  subjects.  Nevertheless,  were  the 
government  of  any  one  country  in  reality  so  to  act,  it  would 
be  the  imperative  obligation  of  every  other  government  to 
modify  its  tariff  of  duties,  or  system  of  bounties,  in  such  a 
manner  as  to  prevent  as  much  as  possible  the  infliction  upon 
society  of  the  "  evils  of  change." 


36 


278  THE  pRi?^crrLEs  of 


CHAPTER  XII. 

THE  SAME  SUBJECT  CONTINUED. 

The  effects  of  the  imposition  or  repeal  of  bounties  or  pro- 
tecting duties  in  any  one  country  upon  other  countries  is, 
indeed,  very  far  from  being  generally  understood.  I  will 
illustrate  them  farther  in  the  case  of  a  repeal  of  a  duty, 
and  the  reader  will  then  not  be  at  a  loss  to  understand  what 
will  happen  in  every  case  where  a  protecting  duty  is  imposed, 
instead  of  being  repealed. 

Suppose  that,  but  for  the  existence  of  the  British  corn  laws, 
corn  would  be  annually  exported  from  the  United  States  to 
Great  Britain  to  the  value  of  ten  millions  of  dollars.  The 
reader  needs  not  to  be  told  that  this  supposition  is  made  only  for 
the  sake  of  argument ;  and  that,  were  those  laws  to  be  in  fact 
repealed,  it  is  not  at  all  improbable,  from  a  comparison  for  a 
series  of  years  past  of  the  prices  of  the  different  kinds  of  grain 
in  the  two  countries,  that  very  little  of  it  would  ever  be 
exported  from  this  country  to  the  British  islands.  Ten  millions 
of  dollars  could  not  be  added  to  the  value  of  our  exports 
without  a  corresponding  addition  being  made  to  our  imports, 
on  the  principles  already  explained.  If  our  imports  were  not 
to  increase  when  our  exports  were  doing  so,  the  balance  would 
have  to  be  paid  for  in  specie ;  and,  if  paid  for  in  specie,  a 
general  rise  of  prices  must  ensue  at  home,  while  the  contrary 
will  be  the  case  abroad.  An  additional  motive  for  importing 
and  a  diminished  motive  for  exporting  commodities,  other  than 
money,  will  then  exist.  The  imports  must,  of  course,  go  on 
increasing  while  the  exports  will  go  on  diminishing /rom  their 
augmented  amount ;  until  at  length  they  will  be  again  in 
equilibrium  with  each  other,  and  specie  will  cease  to  flow 


POLITICAL    ECONOMY.  279 

from  the  one  country  to  the  other.  When  this  has  taken  place, 
it  is  evident  that  no  additional  amount  of  commodities  can  be 
annually  exported  without  leading  to  a  corresponding  addi- 
tion to  our  ordinary  imports.  Hence  too,  a  repeal  of  the 
British  corn  laws,  on  the  supposition  above  made,  would  be 
necessarily  followed  by  a  greater  consumption  in  the  United 
States  of  British  goods  of  a  description  to  come  into  competi- 
tion with  our  own  manufactures  ;  and  if  the  repeal  be  a  sudden 
one,  a  temporary  enhancement  of  the  protecting  duties  in  their 
behalf  would  be  desirable.  This  effect  of  the  repeal  of 
restrictions,  on  our  liberty  of  exporting  the  products  of  Ame- 
rican industry  to  other  parts  of  the  commercial  world,  is 
plainly  the  reverse  of  what  the  advocates  of  a  high  tariff  sup- 
pose it  would  be.  They  indeed  often,  under  a  conviction  that 
our  manufacturers  could  then  sustain  themselves  without  any 
legislative  protection,  go  so  far  as  to  proclaim  their  wilUng- 
ness  to  give  up  their  favourite  system,  provided  foreign 
nations  would  at  the  same  time  admit  our  products  freely  into 
their  ports. 

The  only  remaining  reasons  which  seem  to  me  to  have  any 
weight  to  induce  a  modification  of  the  principles  of  free 
trade,  in  their  application,  at  least,  to  the  circumstances  of  an 
agricultural  community,  and  to  one  continually  spreading 
itself  out,  as  in  the  United  States,  over  a  vast  extent  of  a 
hitherto  uncultivated  wilderness,  are  the  two  following.  First, 
that  the  introduction  of  manufactures,  even  at  the  national 
sacrifice  implied  by  the  imposition  of  a  duty  on  imports,  or 
by  the  enactment  of  a  direct  system  of  bounties,  would 
furnish  a  greater  diversity  of  occupations,  and  w^ould,  in  con- 
sequence, be  favourable  to  the  development  by  the  people  of  a 
greater  intellectual,  and  therefore  also  ultimately  of  a  greater 
physical  power.  Every  individual  could  then  more  readily 
find  an  occupation  adapted  to  him  ;  and  inventions  in  the 
various  arts  of  life  would  be  likely  to  be  made  more  rapidly 
when  the  opportunity  was  afforded  of  comparing  together,  as 


280  THE    PBINCIPLES   OF 

would  then  too  be  the  case,  a  greater  number  of  the  processes 
actually  employed  in  them.  Secondly,  the  population  of  a 
country  may  be  diffused  over  so  very  v^^ide  a  surface,  when 
compared  with  its  numbers,  as  to  subject  it  to  a  considerable 
moral  disadvantage.  A  greater  proportion  of  the  people  must 
then,  almost  necessarily,  remain  destitute  of  the  means  of 
education  as  well  as  of  the  services  of  religion,  or  must  possess 
them  in  a  diminished  extent. 

I  shall  not  undertake  to  estimate  with  any  exactness  the 
degree  in  which  these  arguments  in  support  of  the  system  of 
restriction  apply  to  the  circumstances  of  our  own  country;  and 
shall  here  merely  oppose  to  them  some  considerations  which, 
although  only  secondary  in  importance  to  what  has  already 
been  adduced  to  shew  that  the  natural  distribution  of  capital 
and  labour  is  the  one  most  advantageous  to  the  community  at 
large,  ought  not  to  be  entirely  passed  over  in  silence.  The 
considerations  adverted  to  will,  not  improbably,  be  regarded 
hy  the  reader  as  constituting  an  adequate  set-off  for  the  above- 
mentioned  restrictive  arguments. 

Although  it  is  unquestionably  true  that  every  occupation  is 
equally  advantageous,  on  the  average,  to  both  the  capitalists 
and  the  labourers  concerned, — and  therefore  to  the  country 
in  general,  in  so  far  as  the  capitalists  and  labourers  are  capa- 
ble of  appreciating  the  various  circumstances  of  advantage  or 
of  disadvantage  connected  with  it, — it  is  likewise  true  that 
men  are  in  most  cases  apt  to  exaggerate  the  prospects  of 
advantage,  and  to  do  the  reverse  of  this  in  reference  to  those 
of  disadvantage.  This  happens  more  especially  to  the  young, 
upon  their  entrance  on  the  profession  or  career  which  they 
have  chosen  for  themselves,  or  upon  their  entering  on  any 
temporary  undertaking.  But,  at  every  period  of  Me,  we 
perceive  individuals  speculating  in  lotteries,  in  the  stocks,  and 
in  property  of  every  description,  on  the  same  principle ;  even 
with  a  full  knowledge  of  the  chances  of  success  being  against 
them,  every  one  looks  with  a  less  or  more  sanguine  expecta- 


POLITICAL    ECONOMY.  281 

tion  to  a  prosperous  result,  and,  if  success  does  not  arrive, 
experiences  something  like  a  feeling  of  surprise.  Consistently 
too  with  all  this,  those  occupations  which  are  the  most  fluc- 
tuating in  the  value  of  their  products  will,  comparatively 
speaking,  have  more  capital  and  labour  applied  to  them  than 
others  will  have.  Those  which  are  productive  of  the  luxuries 
will  be,  in  this  manner,  more  crowded  than  others  which  are 
productive  of  the  necessaries  of  hfe ;  manufactures,  conse- 
quently, more  so  than  agriculture. 

And  there  is  another  disadvantage  of  manufacturing 
industry,  very  closely  connected  with  the  one  just  mentioned. 
The  sudden  declension  to  which  many  branches  of  them  are 
liable  from  a  sudden  diminution  of  demand, — a  diminution  of 
demand  that  may  arise  from  a  change  in  the  fashion  of  the 
day, — will  frequently  throw  a  large  number  of  labourers  out 
of  employment,  who  will  be  obliged  for  a  time  to  content 
themselves  with  a  reduced  rate  of  living.  They  will  thus 
have  their  ideas  lowered  of  what  constitutes  for  them  a  com- 
petent livelihood,  and  their  condition  will  have  a  tendency  to 
become  permanently  degraded.  Other  circumstances  being 
the  same,  we  have  here  then  a  reason  of  some  weight  for 
postponing  the  period  of  the  introduction  of  manufactures  into 
a  country,  and,  a  fortiori,  a  reason  for  not  forcing  them  into 
existence,  by  the  instrumentahty  of  legislativ^e  enactments, 
before  the  natural  period  of  their  introduction  shall  have 
arrived. 

Again,  if  the  condition  of  the  labourers  in  any  one  depart- 
ment of  industry  be  depressed  from  any  cause  below  the  rate 
at  which  it  would  be  but  for  the  action  of  that  cause,  it  will 
necessarily  happen  that  it  will  come  to  be  depressed  in  every 
other ;  or,  in  other  words,  the  wages  of  labour  generally  will 
be  lowered. 

In  a  preceding  part  of  the  present  treatise,  it  was,  moreover, 
shewn  that  the  command  which  the  mass  of  the  community 
at  any  time  possess  over  the  necessaries  and  luxuries  of  life  is 


282  THE    PRINCIPLES    OF 

determined,  other  circumstances  being  the  same,  by  their 
moral  condition.  To  say  here,  therefore,  that  the  general 
rate  of  wages  is  reduced,  is  equivalent  to  saying  that  the 
moral  condition  of  the  people  generally  has  been  depreciated. 
There  is  also  an  argument  against  a  protecting  tariff  which 
I  have  never  seen  stated  by  any  other  writer  on  political 
economy,  and  which,  though  not  of  much  comparative 
moment,  deserves,  in  my  opinion,  not  to  be  passed  over 
without  mention  in  this  place.  On  the  first  enactment  of  such 
a  tariff,  or  on  its  being  at  any  time  rendered  higher  than  it 
was,  the  reader  will  recollect  that  specie  will  flow  for  a  season 
into  the  country  where  this  has  taken  place  from  all  others 
with  which  it  has  intercourse,  that  is  until  the  due  proportion 
between  the  exports  and  imports,  which  had  been  disturbed 
by  the  interference  of  the  government  with  the  pre-existing 
state  of  things,  is  again  restored.  It  is  plain  that  the  quantity 
of  specie  in  the  country  will  be  greater  according  as  a  greater 
degree  of  protection  or  encouragement  has  been  afforded  to 
the  various  classes  of  domestic  producers,  by  means  of  the 
imposition  of  duties  on  commodities  imported  from  abroad  ; 
— and  the  same  conclusion  will  manifestly  hold  good  if  the 
encouragement  be  afforded  through  the  instrumentality  of  a 
system  of  bounties,  or  in  any  other  supposable  way.  Hence 
a  nation  needs  only  to  adopt  the  restrictive  as  opposed  to  the 
free  trade  system,  and  it  will  secure  to  itself  a  permanently 
augmented  specie  circulation,  and  therefore  also  a  permanently 
augmented  circulating  medium,  in  whatever  proportions  of 
paper  and  metallic  money  this  may  be  composed.  But  will  an 
augmented  circulating  medium  be  an  advantage  to  a  country? 
After  what  has  been  delivered  concerning  money  in  my  third 
book,  I  hope  there  will  be  none  among  my  readei's  who  will 
for  a  moment  hesitate  to  reply  in  the  negative.  In  that  place, 
it  appears  to  me  that  I  have  satisfactorily  shewn  it  to  be  a 
matter  of  great  indifference,  looking  at  permanent  results, 
whether  the  circulating  medium  be  large  or  small ;  the  value 


POLITICAL  ECONOMY,  283 

of  it,  regarded  as  a  whole,  being,  whether  large  or  small, 
invariably  the  same.  And  so  far  is  the  retaining  a  greater 
amount  of  specie  in  the  country  an  advantage  to  it,  it  is  a 
positive  disadvantage;  for  every  dollar  so  retained  excludes 
an  equal  value  of  other  commodities,  which  might  be  procured 
in  exchange  for  it  by  exporting  it  abroad.  The  whole  amount 
of  the  specie  unnecessarily  retained  should  be  therefore 
regarded  as  a  national  loss. 

The  conclusion  just  arrived  at  has  been  deduced  on  the 
supposition  of  the  state  of  free  trade  having  been  disturbed  by 
the  first  enactment  of  a  tariffof  duties  on  imports.  It  is  evident 
that  the  same  conclusion  will  result  if  we  suppose  the  existing 
protecting  tariff  to  be  added  to  by  the  enactment  of  other 
protecting  duties.  And  again,  it  must  be  equally  evident  that 
there  is  nothing  in  my  reasoning  which  is  not  as  applicable 
when  the  duties  imposed  on  imports  are  productive  of 
a  revenue  to  the  government,  as  when  they  operate  prohibi- 
torily ;  that  is  when  the  imposition  of  such  revenue  duties  is 
followed  by  the  importation  of  a  diminished  value  of  commo- 
dities from  abroad  ;  which  might  not,  however,  be  always  the 
case. 

Every  condition  of  society,  it  may  be  observed  in  the  next 
place,  is  subjected  to  alteration  from  the  inconstant  passions 
and  variable  opinions  of  men ;  but  none  is  less  hable  to  fluc- 
tuation, and  especially  to  great  fluctuation,  than  that  which 
is  the  most  natural,  or  in  other  words  than  that  which 
requires  the  least  amount  of  legislation  to  secure  its  continu- 
ance. The  laws  of  nature  are  as  immutable  as  the  will  of 
Him  who  has  ordained  them :  human  laws,  on  the  contrary, 
only  endure  for  a  time,  and  often,  even  when  least  open  to 
well  founded  objection,  for  a  very  short  period  of  time.  That 
prosperity  therefore,  which  is  the  least  dependent  upon  artifi- 
cial regulation,  will  be  the  most  stable,  and  for  this  reason  the 
most  desirable.  And  here  we  have  another  argument  in  favour 
of  the  system  of  free  trade. 


284  THE  PRINCIPLES  OF 

I  also  maintain  the  expediency  of  leaning,  in  every  doubtful 
case,  towards  a  freedom  of  trade  with  other  nations  rather 
than  in  the  contrary  direction,  on  account  of  the  freedom  in 
question  being  the  most  desirable  condition  of  things,  if 
universally  introduced;  and  because  the  only  mode  of  gradu- 
ally introducing  it  is  by  the  more  enlightened  among  the 
nations  of  the  earth  setting  the  example  of  advancing  in  the 
right  direction,  whenever  an  opportunity  is  offered  to  them  of 
doing  so.  Free  trade,  indeed,  should  always  be  looked  upon 
as  a  goal  which  all  the  nations  are,  in  the  course  of  improve- 
ment, to  strive  to  arrive  at  eventually. 

And  this  is  not  the  only  point  of  view  in  which  the  cause  of 
free  trade  is  likewise  the  cause  of  civilisation.  May  we  not 
hope  that,  when,  by  the  gradual  removal  of  the  restrictions 
which  at  present,  almost  every  where,  impede  the  intercourse 
of  one  country  with  another,  this  intercourse  shall  become 
every  where  more  and  more  extensive,  the  extreme  incon- 
venience consequent  upon  the  interruption  of  it  by  a  sudden 
change  from  a  state  of  peace  to  a  state  of  war,  together  with 
the  inconveniences  which  must  ensue  from  the  transfers  of 
capital  and  labour  to  which  the  changes  from  peace  to  war 
and  from  war  to  peace  give  occasion,  will  tend  to  lessen  the 
frequency  as  well  as  the  duration  of  actual  warfare,  and  to 
substitute  the  public  opinion  of  mankind  in  place  of  the  mus- 
quet  and  the  sabre  as  an  arbiter  of  the  disputes  of  nations  ? 
But  however  the  reader  may  respond  to  the  question  just  put, 
he  will  be  prepared,  with  the  writer,  to  look  upon  the  princi- 
ples of  free  trade  as  contributing  to  the  peace  of  the  world, 
and  to  the  general  progress  of  human  civilisation,  by  their 
inconsistency  with  the  notion  still  too  prevalent,  that  what  is 
gained  by  one  nation,  by  means  of  its  foreign  commerce,  is 
gained  at  the  expense  of  some  other, — and  by  their  leading,  on 
the  contrary,  to  a  firm  conviction  of  the  prosperity  of  any  one 
country  contributing  to  that  of  every  other,  on  account  of  its 
tendency  to  render  the  commerce  between  them  ever  more 


POLITICAL  ECONOMY.  285 

and  more  extensive, — a  commerce  which  is  shewn  to  be,  of 
necessity,  mutually  advantageous  to  all  the  parties  con- 
cerned. 


CHAPTER  XIII. 


THE  SAME  SUBJECT  CONTINUED. 


Long  as  I  have  already  dwelt  on  the  subject,  of  the  tariff 
and  free  trade,  I  deem  it  expedient,  before  quitting  it,  to  point 
out  a  few  of  the  mistakes,  in  addition  to  those  already 
adverted  to,  into  which  the  parties  have  fallen,  by  whom  it 
has  been  agitated  in  this  country.  In  doing  this,  some  light 
cannot  fail  to  be  shed  on  the  application  of  the  principles 
which  may  now  be  regarded  as  having  been  established. 

At  the  expiration  in  1815  of  the  war  with  Great  Britain,  a 
tariff  of  duties  was  enacted  by  Congress,  intended,  on  the 
one  hand,  to  furnish  the  general  government  of  the  Union 
with  an  adequate  revenue,  and,  on  the  other,  to  administer  a 
certain  amount  of  protection  from  foreign  competition  to  the 
American  manufacturers.  Although  this  protection  might 
not,  at  the  time,  have  been  judged  by  many  of  them  to  be 
large  enough  to  secure  the  accomplishment  of  the  intended 
object,  very  few  suspected  that  they  would,  before  any  consi- 
derable period  should  have  elapsed,  become  earnest  solicitors 
with  the  government  for  the  enactment  of  a  scale  of  duties  on 
foreign  imports,  which  they  themselves  would  not  have  hesi- 
tated to  have  previously  pronounced  to  be,  if  not  extravagant, 
at  least  altogether  unnecessary.  Whence  did  this  mistake  on 
their  part  arise  ?  And  how  was  it  that,  notwithstanding  the 
acquisition  of  increased  skill  by  the  American  manufacturers, 

37 


886  THE  PRINCIPLES  OP 

the  tariff  of  1816  was  followed  by  that  of  1824,  and  this 
again  by  that  of  1828,  without  entirely  satisfying  the  demands 
of  their  advocates'?  The  chief  reason  for  all  this  seems  to 
me  to  be  found  in  the  propensity,  before  adverted  to,  of  each 
member  of  society  to  act  independently  of  all  others,  in  the 
disposition  of  his  capital  and  labour.  There  is  nothing  more 
common  than  to  see  people  acting  in  this  respect,  just  as  if  the 
very  same  considerations  which  have  influenced  their  minds 
were  not  likely  to  influence  the  mind  of  every  one  else.  So 
when,  in  consequence  of  the  protection  or  encouragement 
bestowed  upon  any  particular  branch  of  industry,  it  has 
become  profitable  to  invest  capital  in  it  rather  than  in  other 
branches  of  industry,  the  capitalists  will  seldom  make  due 
allowance  for  the  competition  of  one  another,  and  will  engage 
in  the  protected  employment  to  such  an  extent  as  to  cause  it  to 
yield  less  than  the  ordinary  rate  of  profit.  It  is  true  that  such 
inequality  in  the  rate  of  profit  would  after  a  time  be  corrected 
by  the  transfer  of  capital  in  the  opposite  direction.  But  in  the 
meanwhile,  before  this  would  take  place,  the  parties  concerned 
in  the  protected  employment  would,  very  naturally,  complain 
that  the  protection  received  by  them  was  less  than  they  ought 
to  have,  and  be  clamorous  for  getting  more  ;  and  if  more  be 
then  granted  them,  the  same  series  of  consequences  will  recur. 
And  we  have  here  an  account  of  what  actually  ensued 
upon  the  successive  enactments  of  the  different  tariffs  above 
mentioned. 

In  accordance  with  these  views,  we  find  that  some  few  of 
the  American  manufacturers,  who,  in  consequence  of  superior 
skill,  or  superior  advantages  of  situation,  were  making  larger 
profits  than  the  manufacturers  generally,  felt  no  desire  for,  or 
were  even  opposed  to  the  raising  of  the  tariff  of  duties  in 
1824  and  1828.  They  regarded  the  losses  to  which  they 
would  not  fail  to  be  subjected  in  the  first  instance  as 
equivalent,  or  more  than  equivalent,  to  the  advantages  which 
they  might  ultimately  derive  from  any  measure  of  the  kind. 


POLITICAL   ECO:!JOMJr.  287 

The  mistake  of  supposing  adequate  encouragement  to  have 
been  given  by  the  government  to  the  manufacturers  of  the 
country,  on  the  enactment  of  each  of  our  successive  tariffs, 
I  need  scarcely  mention  was  common  with  them  to  their 
opponents. 

It  is  not  requisite  for  me  to  repeat  how  it  invariably  happens, 
on  the  imposition  of  a  certain  amount  of  duty,  that,  while  the 
imports  into  the  country  are  diminished,  the  exports  become 
also  diminished  in  the  same  proportion ;  and  also  that  both 
exports  and  imports  undergo  a  diminution  to  an  extent  less, 
and  sometimes  considerably  less,  than  the  value  of  the  formerly 
imported,  but  now  prohibited  articles.  I  may  now  take  for 
granted  that  all  this  is  sufficiently  familiar  to  my  readers. 
That  it  was  very  far  from  being  understood  at  the  time 
adverted  to,  was  of  material  injury  to  the  anti-tariff  cause. 
The  prophecies,  put  forth  by  its  advocates,  of  the  destructive 
consequences  to  our  foreign  commerce,  to  result  from  aa 
increase  of  the  duties  on  imports,  were,  more  than  once, 
contradicted  by  the  event,  and  furnished  ground  to  their 
opponents  of  a  renewed  confidence  in  their  own  specula- 
tions, as  well  as  of  an  additional  distrust  in  the  conclusions 
of  political  economy. 

Every  duty  on  a  foreign  article  imported  into  a  country, 
by  having,  besides  its  direct  effect  of  diminishing,  or  entirely 
preventing,  the  importation  into  it  of  the  article  in  question, 
the  incidental  effect  of  promoting  the  importation  of  other 
foreign  articles  in  greater  abundance  than  before,  cannot 
but  act  in  a  certain  degree  as  a  discouragement  to  the  domestic 
producers  of  similar  articles.  Hence  it  is  a  mistake  to  suppose 
that  the  encouragement  afforded  in  any  particular  instance  is 
always  to  be  measured  by  the  amount  of  the  imposed  duty. 
Thus,  if  a  duty  of  thirty  per  cent,  is  just  sufficient  to  enable 
the  American  manufacturer  of  a  certain  article  to  establish  his 
business,  a  portion  of  the  thirty  per  cent,  may  have  become 
necessary  for  the  purpose  of  counteracting  the  opposite  ten- 


288  THE  PRINCIPLES  OP 

dency  of  other  duties  previously  imposed.  And  because  of 
the  fall  in  the  price  of  any  commodity,  when  permitted  to  be 
imported  after  the  enactment  of  a  protecting  tariff  of  duties, 
a  fall  of  price  necessarily  implied,  by  a  greater  amount  of 
it  being  in  that  case  imported  than  before  the  imposition  of 
duties  upon  other  articles, — taken  in  connection  with  the 
circumstance  of  the  prices  of  things  having  previously  fallen 
abroad  on  account  of  the  imposition  of  those  duties, — my 
readers  will  easily  perceive  the  inaccuracy  of  saying,  as  some 
writers  have  said,  that  the  sacrifice  which  a  nation  makes 
when  it  protects  the  production  at  home  of  any  article  by 
prohibitory  acts,  is  to  be  measured  by  the  excess  of  the  cost 
of  producing  it  at  home  over  the  cost  of  actually  procuring 
it  at  the  time  from  abroad,  were  the  prohibition  of  its  impor- 
tation to  be  removed.  The  true  measure  is,  plainly,  the  excess 
of  producing  the  article  at  home  over  that  of  procuring  it 
from  abroad,  if  all  legislative  measures  restricting  its  trade 
with  other  nations  loere  to  he  repealed. 

The  circumstance  of  a  duty  imposed  upon  an  article  of 
foreign  importation  operating  at  the  same  time  as  an  encour- 
agement to  the  importation  of  other  articles  from  abroad,  and 
therefore  as  a  discouragement  to  the  domestic  producers 
generally,  will  in  part  account  for  the  disappointment  experi- 
enced by  our  manufacturers  in  not  being  benefited  by  protective 
duties  to  the  full  extent  anticipated  by  them. 

When  the  tariff  of  duties  is  lowered,  the  reader  can  now 
also  understand  how  it  is  that  the  injurious  effects  resulting  to 
the  domestic  producers  is  mitigated  by  the  partial  encourage- 
ment which  the  lowering  of  any  one  duty  administers  to  them  ; 
and  consequently,  how  it  may  have  happened  that  the  com- 
promise act  of  1832,  by  which  the  duties  on  imports  were 
gradually  reduced,  has  not  been  as  injurious  to  the  manufac- 
turing interests  of  the  United  States  as  might,  at  first,  have  been 
supposed  it  would  be. 

It  must  now  also  be  apparent  that  there  are  two  reasons, 


POLITICAL  ECONOMY.  289 

independently  of  the  advancing  population,  and  therefore  con- 
sumption, of  the  country,  why,  in  despite  of  the  repeatedly 
augmented  protection  bestowed,  until  1832,  on  the  American 
manufacturers,  the  revenue  derived  by  the  general  government 
from  the  duties  on  foreign  imports  should  have  been  rendered 
always  greater  after  every  augmentation  of  protection  than  it 
was  immediately  previous  ;  first,  the  higher  duties  exacted  on 
the  commodities  still  imported  ;  and  secondly,  the  circumstance 
of  these  being  imported  to  a  greater  amount  than  heretofore, for 
the  reason  above  assigned. 

If  the  tariff  of  duties  may  be  so  raised  as  to  accomplish 
both  the  objects,  of  adding  to  the  revenue  of  the  country,  and 
of  giving  an  increased  protection  to  the  manufacturing  inter- 
ests, the  contrary  must  likewise  be  true,  namely,  that  the 
tariff  may  be  so  reduced  as  to  diminish  as  well  the  public 
revenue  as  the  protection  enjoyed  by  the  manufacturers.  These 
two  propositions  are,  indeed,  so  very  obviously  true  that  no 
one  will  be  found  to  controvert  them. 

But  there  are  not  a  iew  persons  who  go  farther,  and  look 
upon  it,  if  not  as  impossible,  yet  as  a  matter  of  extreme  diffi- 
culty, to  raise  or  lower  the  tariff  of  duties  so  as  to  produce,  in 
either  case,  one  of  the  effects  indicated,  and  not  at  the  same 
time  produce  the  other.  They  have  puzzled  themselves  in 
vain,  with  an  attempt  to  solve  the  problem  how  the  revenue 
might  be  diminished  and  a  surplus  in  the  pubHc  treasury  got 
rid  of,  without  removing  the  protection  bestowed  on  the 
manufacturers  any  faster  than  it  is  in  process  of  being  removed 
by  the  operation  of  our  existing  laws.  In  order  to  attain  this 
end,  all  that  would  be  necessary  would  be,  in  the  first  place, 
to  reduce  the  duties  on  all  sorts  and  qualities  of  goods  which 
are  at  present  imported  from  abroad,  or  on  a  sufficient  number 
of  them.  But  if  this  be  done,  experience  in  every  similar  case 
tells  us  that  the  value  of  the  imports  will  be  greater  than  they 
were  before;  and  if  so,  the  revenue  will  not  be  reduced 
by  a  given  diminution  of  the  duty  as  much  as  might  have  been 


290  THE  PKINCIPLES  OP 

at  first  supposed.  Our  remedy  for  the  existence  of  any  con- 
sequent excess  of  revenue  will,  of  course,  be  to  lower  still 
farther  the  rate  of  duty.  That  we  have  it  in  our  power,  by 
going  on  in  this  way,  to  reduce  the  revenue  in  any  degree 
we  may  choose,  will  hardly  be  denied  by  any  one ;  since  it 
is  manifest  that,  by  carryingon  the  process  described,  the  duty 
may  be  lowered  to  nothing,  and  the  revenue  wholly  annihilated. 
Let  us,  then,  suppose  the  public  revenue  reduced  to  the  desired 
extent,  by  the  requisite  alteration  ;n  the  revenue  duties,  with- 
out touching  those  which  are  of  a  protective  character.  I 
maintain  that,  for  the  purpose  of  administering  precisely  the 
same  degree  of  protection  as  before,  those  of  the  last  mentioned 
description  will  also  have  to  be  altered,  excepting  in  the 
peculiar  case  of  the  quantity  of  the  articles  imported  bearing 
just  such  a  relation  to  the  diminished  value  of  a  given  portion 
of  them  as  to  retain  the  imports,  considered  as  a  whole,  of  the 
same  value  as  at  first.  Should  that  value  be  less  than  it  was, 
the  consequences  will  be  similar  to  those  which  were  shewn  to 
take  place  in  the  case  of  the  imposition,  or  increased  imposi- 
tion, of  prohibitory  duties  ;  that  is,  the  value  of  the  exports  will 
become  gradually  less,  and  specie  will  for  a  time  flow  into  the 
country.  When  the  ordinary  proportion  between  the  exports 
and  imports,  as  well  as  the  equilibrium  of  the  precious  metals, 
shall  at  length  have  been  attained,  the  prices  of  commodities 
generally  will  be  higher  at  home,  and  lower  abroad,  than  before 
the  reduction  of  the  revenue, — a  state  of  things  manifestly  unfa- 
vourable to  our  manufacturers.  Such  of  them  as  had  been  pro- 
tected by  a  duty  no  higher  than  was  just  sufficient  to  exclude 
their  foreign  competitors  from  the  American  market  will  find 
themselves  at  a  disadvantage,  and  will  require  additional  legis- 
lative protection  to  enable  them  to  stand  their  ground.  It  is, 
moreover,  worthy  of  remark  that  if,  in  this  state  of  things,  the 
duties  on  the  protected  articles  be  not  raised,  it  is  very  con- 
ceivable how,  notwithstanding  the  diminution  in  the  value  of 
the  imports  of  those  articles  which  do  not  come  into  competi- 


POLITICAL    ECONOMY.  291 

tion  with  our  own  manufactures,  the  renewed  importations  of 
certain  articles  which  do  come  into  competition  with  them 
may  cause  the  value  of  the  imports,  and  therefore  of  the 
exports,  to  equal  or  exceed  what  it  had  been.  If  the  value  of 
the  articles  heretofore  imported  be,  on  the  contrary,  greater 
than  they  were  before,  and  this  will  very  often  be  the  case, 
opposite  consequences  to  those  which  have  been  described 
will  ensue, — that  is,  an  encouragement,  and  not  a  discourage- 
ment, will  be  administered  to  the  domestic  producer  by  the 
reduction  of  the  revenue  duties.  To  maintain  the  manufac- 
turers on  their  former  footing,  it  will  be  requisite  to  i-educe, 
instead  of  raising,  the  duties  imposed  for  their  benefit  on  the 
imports  from  abroad.  I  may  add  that  there  can  scarcely  be 
a  doubt  of  their  having  derived  a  benefit,  since  the  passage  of 
the  famous  compromise  act,  from  the  repeal  or  reduction  of 
revenue  duties  compensating  in  part  the  loss  to  which  they 
have  been  subjected  by  the  lowering  of  the  duties  which 
operated  prohibitorily  on  foreign  imports.  Of  this,  however, 
the  reader  will  be  enabled  to  judge  for  himself  by  a  comparison 
of  the  tables  of  exports  and  imports,  annually  published  by  the 
government. 


292  THE  FBINCIPLES  OF 


CHAPTER  XIV. 

ON    THE    TERMS    AMERICAN    SYSTEM,    AND    AMERICAN    INDUSTRY 

REMARKS  ON  THE  DOCTRINE  THAT  A  TAX  UPON  FOREIGN  IMPORTS 
IS  INCIDENT  ON  THE  PRODUCERS  OF  THE  COMMODITIES  WHICH  ARE 
EXPORTED  IN  EXCHANGE  FOR  THEM. 

In  the  course  of  the  preceding  remarks,  I  have  occasionally 
spoken  of  the  sacrifice  made  by  a  nation  for  the  benefit  of  a 
particular  class,  by  means  of  the  duties  which  it  imposes  on 
its  foreign  imports.  However  convenient  such  language  may 
be,  it  is  very  hable  to  be  misunderstood  ;  and  it  has  in  fact  been 
often  misunderstood  by  being  taken  in  too  hteral  a  sense.  It 
is,  therefore,  important  to  explain  it  distinctly.  If  the  capital  of 
the  favoured  class  were  always  applied  under  similar  circum- 
stances of  advantage  and  of  disadvantage  in  respect  to  situa- 
tion, or,  in  other  words,  if  no  portion  of  it  paid  any  rent,  it 
could  in  no  case  yield  to  its  owner  more  than  the  ordinary 
rate  of  profit.  Whatever  benefit  the  class  in  question  may 
then  derive  from  the  duties  imposed  could  only  be  temporary. 
The  case  supposed  is,  however,  not  always  that  of  our  manu- 
facturers, to  which  our  attention  has  been  latterly  so  much 
directed.  The  situations  or  sites  which  they  occupy  are,  in 
some  branches,  adapted  in  very  diflferent  degrees  to  the  pur- 
poses they  have  in  view ;  so  that  while  some  pay  little  or  no 
rent,  others  pay  a  considerable  amount  of  it  to  the  proprietors 
of  the  soil.  Here  it  is  evident  that  those  manufacturers  alone 
who  occupy  and  possess  the  situations  where  a  rent  is  yielded 
are  permanently  benefited  by  the  restrictive  measures  of  the 
government.  All  others,  had  the  measures  of  the  government 
not  induced  them  to  invest  their  capitals  in  manufactures, 
would  have  been  able  to  make  equivalent  profits  in  some  other 


POLITICAL    ECONOMY.  293 

occupation.  They  would,  indeed,  have  been  able  to  make 
more  than  equivalent  profits  under  a  system  of  free  trade ; 
because,  under  such  a  system,  a  greater  amount  of  production 
would  take  place,  and  both  profits  and  wages  would  have  a 
tendency  to  be  higher  than  under  one  of  restriction. 

What  has  just  been  said  in  reference  to  the  manufacturers, 
it  may  be  mentioned,  will  apply  to  the  case  of  the  agricultu- 
rists, wherever  legislative  encouragement  has  been  bestowed 
upon  them ;  and  will  apply  to  them  in  a  still  greater  degree, 
because  agriculture  is  that  department  of  industry  which 
presents  the  most  remarkable  as  well  as  most  numerous 
illustrations  of  the  payment  of  rent.  There  is,  however,  this 
difference  in  many  countries, — Great  Britain,  for  example, — 
between  manufactures  and  agriculture ;  that  while,  in  the 
former,  the  receiver  of  profits  and  the  receiver  of  the  rent, 
where  rent  is  paid,  is  one  and  the  same  person,  in  the  latter 
they  are  most  commonly  distinct  from  each  other.  It  will 
follow,  accordingly,  that  the  landlords,  and  not  the  farmers, 
are  benefited  by  the  British  corn  laws. 

To  proceed  :  a  mistake  has,  without  doubt,  been  committed 
by  many  advocates  among  ourselves  of  the  system  of  restric- 
tion, in  designating  it  as  the  American  system,  and  in  announcing 
its  object  to  be  the  protection  of  American  industry.  Although 
designing  men  may  have,  not  seldom,  employed  these  terms 
with  an  intention  to  mislead,  being  aware  of  the  influence 
upon  their  fellow-men  of  a  good  or  a  bad  name  in  determining 
their  opinions,  even  on  the  most  important  points,  and  this 
sometimes  independently  of  any  argument ;  very  many  well- 
meaning  persons  have  honestly  believed  that  the  question  at 
issue  between  the  tariff  and  free  trade  parties  was  whether 
the  industry  of  their  countrymen  or  that  of  foreigners  should 
have  a  preference  given  to  it  by  our  own  citizens,  and  by  our 
own  government.  Operated  upon  by  the  names  American 
system  and  American  industry,  they  were,  in  some  instances, 
led  to  look  upon  their  adversaries  very  much  in  the  light  of 

38 


294  THE  PRINCIPLES  OP 

traitors  to  their  country,  and  as  deserving,  in  consequence,  of 
the  pubHc  odium  and  indignation.  All  this  has,  however, 
passed  away ;  and  we  might  now  almost  imagine  that  it 
had  never  been.  Yet  it  is  possible  that  the  discussion  which 
gave  rise  to  it  may  at  some  future  time  be  again  renewed. 
Partly  for  this  reason,  and  partly  on  account  of  the  singular 
illustration  the  subject  presents  of  the  misapplication  of  terms 
in  the  discussions  of  poUtical  economy,  I  have  noticed  it  in 
this  place.  To  repeat  what  has  already  been  mentioned,  the 
true  question  at  issue  between  the  advocates  of  free  trade  and 
the  advocates  of  restriction  is,  whether  the  natural  distribution 
of  capital,  or  another  distribution  of  it,  the  result  of  legislative 
regulation,  is  most  advantageous  to  a  country.  The  same 
amount  of  capital  is  employed  in  both  cases  alike ;  the  only 
difference  being  that,  in  the  one,  a  certain  portion  of  capital 
is  apphed  to  the  production  in  the  country  itself  of  commodi- 
ties, which  are  procured,  in  the  other,  by  the  application  of 
the  very  same  capital  to  the  production  of  other  commodities, 
which  are  destined  to  be  exchanged  for  them  when  they  are 
introduced  into  the  country  from  abroad.  These  too,  because  they 
are  always  procured  in  exchange  for  the  products  of  our  own 
citizens,  are  to  all  intents  and  purposes  entitled  to  be  likewise 
considered  as  the  products  of  American  industry.  And  the 
system  of  free  trade  is,  therefore,  quite  as  much  entitled  to  be 
denominated  the  American  system  as  is  the  system  of  restric- 
tion. I  have  said  quite  as  much  entitled  :  it  would  have  been 
strictly  proper,  on  the  principles  already,  I  hope,  successfully 
established,  to  have  said  more  entitled  to  be  denominated  the 
American  system ;  for  the  free  and  uncontrolled  distribution 
of  capital  and  labour  is  the  most  productive  distribution  of 
them,  and  is  consequently  that  which  is  calculated  to  give  to 
both  capitalists  and  labourers  the  largest  command  over  the 
necessaries  and  luxuries  of  life. 

Much   more   space   might   be  occupied    in   noticing   the 
errours  of  our  writers  and  speakers  on  the  subject  now  under 


POLITICAL  ECONOMY.  295 

examination ;  but  I  will  content  myself  with  one  more  only.  I 
mean  the  remarkable  doctrine,  which  was  first  broached  by  a 
southern  statesman  of  high  standing,  that  the  duties  imposed 
on  foreign  imports  are  eventually  paid,  not  by  the  consumers, 
as  is  generally  supposed,  but  by  the  producers  of  the  commo- 
dities exported  in  exchange  for  those  imports.  It  followed  from 
this  doctrine  that  the  cotton  growers  of  the  United  States 
were  sufferers  from  the  operation  of  our  tariff  laws  to  a 
degree  altogether  extraordinary ;  and  that,  while  the  country 
north  of  the  Potomac  experienced  from  them  all  the  benefits 
they  bestowed,  the  country  to  the  south  of  that  river  expe- 
rienced from  them  nothing  but  unmitigated  evil.  All  this  was 
very  well  fitted  to  aggravate  the  hostility  of  a  considerable 
portion  of  our  citizens  to  the  protective  system,  as  it  existed 
among  us  previous  to  its  modification  and  gradual  repeal  by 
the  act  of  1833 ;  to  which  act  it  may  have  in  a  certain  degree 
happily  contributed.  My  readers  nevertheless,  if  they  have 
adopted  the  principles  which  I  have  attempted  to  establish  in 
the  present  treatise,  will  not  hesitate  to  reject  the  doctrine  in 
question  as  an  illegitimate  support  of  the  liberty  of  commerce. 
The  duty  on  any  article,  although  levied  in  the  first  instance 
on  the  importing  merchant,  has  been  shewn  to  be  ultimately 
incident  on  the  consumer.  This  has,  at  least,  been  shewn  to 
be  so  when  the  article  taxed  still  continues  to  be  imported  ; 
and  that  it  is  so  when,  in  consequence  of  the  duty  operating 
prohibitorily  on  foreign  imports,  the  article  consumed  is  a 
domestic  one,  is  an  obvious  inference  from  the  cost  of  pro- 
curing it,  and  therefore  its  price,  having  been  enhanced,  as  has 
also  been  previously  shewn,  by  the  amount  of  the  duty  im- 
posed ;  provided,  of  course,  the  duty  imposed  be  just  equal  to 
the  difference  in  the  cost  of  procuring  the  article  from  abroad 
and  producing  it  at  home.  To  establish  the  production  of  it, 
however,  at  home,  it  will  be  recollected  that  a  duty  somewhat 
greater  than  this  will  be  requisite.  I  may  observe  that  it  is 
often  much  greater ;  in  other  words,  it  is  greater  than  what  is 


296  THE    PBINCIPLES  OF 

necessary  for  the  object  in  view.  If  a  duty  of  ten  per  cent, 
will  exclude  the  foreign  article,  it  must  be  a  matter  of  entire 
indifference  with  the  home  producer,  as  well  as  with  the 
community  [whether  the  duty  imposed  shall  be  one  often  or  a 
hundred  per  cent.  Any  larger  duty  than  ten  per  cent,  is,  under 
such  circumstances,  merely  nominal. 

But  while  the  duty  will,  in  every  instance,  fall  upon  the 
consumers,  and  not  upon  the  producers  of  the  articles  hereto- 
fore exported,  the  latter  will  not  fail  to  suffer  a  certain  degree 
of  inconvenience  and  loss.  The  imports  into  the  country 
cannot  be  diminished,  without  the  exports  also  becoming  less 
than  they  were  before.  A  partial  transfer  must  take  place  of 
the  capital  of  the  producers  adverted  to ;  and  such  a  transfer 
implies  that  a  loss  has  been  incurred  by  the  capitalists, — a 
loss,  moreover,  which  is  the  greater  according  to  the  difficulty 
of  effecting  the  transfer.  Now  that  the  difficulty  of  transferring 
the  capital  of  the  cotton  growers  to  most  other  employments 
is  extremely  great,  cannot  be  denied.  There  are,  however, 
two  considerations  to  be  adduced,  of  a  nature  to  satisfy  the 
reader  that  the  amount  of  the  injury,  notwithstanding  this, 
inflicted  on  them,  instead  of  being  greater  than  might  at  first 
have  been  supposed,  was  after  all  comparatively  small :  in  the 
first  place,  I  shewed  that  the  whole  amount  of  imports,  and 
consequently  the  whole  amount  cf  exports,  was  always 
redliced  by  a  less  amount  than  that  of  the  articles  whose 
importation  has  been  prohibited  ;  and  secondly,  a  home  market 
for  raw  cotton  was  generated  by  our  tariff  laws,  as  a  substi- 
tute, to  a  considerable  extent,  for  the  loss  in  part,  by  the 
growers,  of  the  foreign  market. 

It  may  be  added  that  whatever  temporary  benefit  may  have 
been  conferred  on  the  cause  of  free  trade  by  the  propounding 
of  the  doctrine  just  refuted,  it  is  calculated  like  every  other 
doctrine  founded  in  errour,  to  do  an  eventual  injury  to  the  cause 
it  is  adduced  to  support.  The  sooner,  too,  so  bad  an  argument 
is  discarded  the  better.    Should  the  contest  between  liberty 


POLITICAL  ECONOMY.  297 

and  restriction,  in  relation  to  commerce,  be  again  revived  in  our 
country,  w^e  may,  accordingly,  hope  that  no  individual  of  high 
political  standing  w^iil  be  disposed  to  employ  it.  And  after  the 
investigations  to  which  the  student  of  political  economy  may 
have  been  introduced  by  the  remarks  which  have  been  made 
in  the  present  book,  I  feel  confident  that  he  will  be  ready  to 
express  his  conviction  that  good  arguments  in  a  sufficient 
number,  and  of  sufficient  force,  are  to  be  found  in  support  of 
free  trade,  to  render  unnecessary  the  use  of  any  bad  argument 
for  this  purpose,  even  though  such  an  argument  could  in 
reality  serve  to  promote  it. 


298  THE  PRINCIPLES  OP 


BOOK  FIFTH. 


ON  THE  INTERFERENCE  OF  INDIVIDUALS  AND  OF  GOVERN- 
MENTS WITH  THE  NATURAL  ORDER  OF  THINGS,  FOUNDED 
ON  OTHER  GROUNDS  THAN  THE  UNEQUAL  PRODUCTIVENESS 
OF  THE  DIFFERENT  BRANCHES  OF  INDUSTRY. 


CHAPTER  I. 

ANALOGY  IN  THE  EFFECTS  PRODUCED  BY  THE  INTERFERENCES  OF 
INDIVIDUALS  AND  OF  GOVERNMENTS  WITH  THE  NATURAL  DIS- 
TRIBUTION OF  CAPITAL  AND  LABOUR THE  QUESTION  EXAMINED, 

AS  TO  WHAT  PROPORTION  OF  A  PERSON'S  INCOME  IT  WOULD 
MOST  CONTRIBUTE  TO  THE  NATIONAL  WELFARE  FOR  HIM  TO 
SAVE. 

The  expediency  of  an  interference,  by  government,  with 
the  natural  distribution  of  the  capital  and  labour  of  a  country, 
has  been  maintained,  in  all  the  instances  of  such  interference 
already  considered,  on  the  ground  of  the  various  branches 
of  industry,  in  the  actual  circumstances  of  society,  not  being 
equally  productive  of  wealth.  Other  interferences  however, 
of  a  different  character,  still  remain  to  be  made  the  subject 
of  discussion. 

And  besides  these,  my  present  book  will  embrace  an  inquiry 
into  the  effects  of  certain  changes  in  the  condition  or  circum- 


POLITICAL  ECONOMY.  299 

stances  of  individuals,  or  of  associations  of  individuals,  which 
might  very  possibly  become,  where  they  have  not  yet  become, 
the  ground  of  legislative  action. 

In  the  preceding  book,  as  the  reader  will  have  observed,  I 
omitted  to  make  any  mention  of  the  conduct  to  be  adopted  by 
the  several  members  of  a  community,  in  consequence  of  the 
opinions  they  may  have  formed  respecting  the  comparative 
productiveness  of  the  different  branches  of  industry  ;  having 
then  confined  myself  to  the  course  which  it  has  been  thought 
expedient  for  the  community  regarded  as  a  whole,  or,  which 
is  the  same  thing,  for  the  government,  acting  in  behalf  and 
with  a  view  to  the  welfare  of  the  whole  community,  to  pursue. 
There  was,  indeed,  no  necessity  for  me  to  have  done  other- 
wise than  I  did ;  since  the  very  same  arguments,  which  were 
adduced  to  shew  why  the  government  should  or  should 
not  act  in  a  particular  manner,  are  equally  applicable,  as 
must  be  manifest  to  my  readers,  to  shew  the  propriety  of 
individuals  acting,  or  abstaining  to  act,  in  a  similar  manner. 
But  another  reason  for  saying  nothing  in  reference  to  the 
action  of  individuals,  was  the  fact  that  very  few  persons  have 
ever  deemed  it  to  be  worth  while  for  them  to  concern  them- 
selves in  their  private  relations  with  the  public  welfare.  Very 
few  persons,  for  example,  even  among  the  most  zealous  advo- 
cates of  a  high  tariff  of  duties  for  the  purpose  of  administering 
adequate  encouragement  to  the  American  manufacturer,  have 
hesitated,  where  in  their  opinion  adequate  encouragement  was 
not  administered  to  him,  to  purchase  and  to  consume  the 
foreign  article  in  preference  to  the  corresponding  domestic 
one,  if  the  former  were  procurable  at  a  price  in  the  smallest 
degree  lower  than  the  latter. 

The  inconsistency  of  their  so  acting  falls  rather  under  the 
animadversion  of  the  moralist  than  of  the  political  philosopher. 
Yet  I  may  be  permitted  to  remark  here,  that  there  can  be  no 
escape  on  their  part,  from  the  charge  of  bemg  inconsistent 
with  themselves,  in  the  inconsiderable  amount  of  the  effect  it  is 


300  THE  PBINCIPLES    OP 

in  their  power  individually  to  produce.  It  seems  to  me  that 
a  man  might  as  well  refuse  to  pay  a  just  debt  to  his  creditor, 
in  a  season  of  general  pecuniary  distress,  on  the  plea  that, 
because  so  many  other  debtors  had  been  unable  to  fulfil  their 
engagements  to  the  creditor,  he  also  was  not  in  conscience 
bound  to  pay  him  his  debt, — as  that  a  "tarifFman"  should  refuse 
to  encourage  the  manufactuies  of  his  countrymen,  by  clothing 
himself  in  them  at  a  higher  price  than  he  would  have  to  pay 
for  foreign  goods,  on  the  plea  that  the  government,  or  the 
country  at  large,  would  not  agree,  by  raising  the  price  artifi- 
cially of  those  foreign  goods,  to  force,  so  to  speak,  a  prefer- 
ence universally  for  domestic  manufactures. 

Instances  will  occur  in  the  discussions  that  are  to  follow,  in 
which,  unlike  those  above  adverted  to,  it  may  be  nearly  or 
quite  as  important  to  trace  the  course  most  expedient  to  be 
pursued  by  an  individual  as  by  the  government  of  a  nation ; 
and  although  that  course  is  in  the  one  case  perfectly  analogous 
to  what  it  is  in  the  other,  it  may  be  more  convenient  to  consi- 
der a  subject  in  the  first  place,  sometimes  with  a  bearing  on 
the  individual,  and  sometimes  with  a  bearing  on  the  govern- 
ment. 

I  may  observe  that  the  order  in  which  the  subjects  of  the 
present  book  are  to  be  treated  is  of  comparatively  little 
moment.  The  'principles  to  be  applied  to  them  have  now 
been  fully  explained ;  and,  although  more  or  loss  intimately 
related,  they  admit  of  being  discussed  without  any  immediate 
reference  to  one  another. 

A  beginning  will  be  made  by  considering,  or  I  should  rather 
say,  reconsidering  the  case  of  the  different  dispositions  which 
may  take  place  of  a  person's  income. 

It  will  be  recollected  that  there  are  only  two  ways  in  which 
he  can  dispose  of  it.  He  may  either  appropriate  it  to  his 
immediate,  or  to  his  future  gratification ;  that  is,  he  may 
consume  it  unproductively,  or  save  and  employ  it  as  capital. 
The  question  now   presents  itself: — How  much  of  income 


POLITICAL  ECONOMY.  301 

is  it  desirable  should,  on  the  average,  be  thus  saved  ?  To 
prepare  ourselves  for  giving  any  thing  like  an  approximate 
answer  to  this  question,  if  even  such  an  answer  to  it  be 
possible,  we  ought  to  bear  in  mind  the  effect  previously- 
deduced  of  the  accumulation  of  savings,  or,  in  other  words, 
of  the  increase  of  capital,  as  contrasted  with  the  effect  of 
every  unproductive  expenditure,  on  the  progress  of  population 
and  wealth;  to  wit,  to  cause  them  to  increase  in  the  same 
proportion.  Many  political  economists,  in  their  attempts  to  find 
an  answer  to  the  proposed  question,  have  looked  at  the  effect 
just  stated  alone,  disregarding  every  other  circumstance. 
They  have  thus  persuaded  themselves  that  the  man  who 
saved  a  considerable  portion  of  his  income  deserved  to  be 
ranked  in  the  class  of  public  benefactors ;  while  he  who 
spent,  on  the  contrary,  the  whole,  or  the  greater  portion  of 
his  income,  ought  to  be  looked  upon  somevi^hat  in  the  light 
of  one  who,  by  wantonly  destroying  a  public  edifice,  or  any 
other  product  of  the  labour  and  capital  of  the  community, 
was  directly  instrumental  in  retarding  the  progress  of  national 
wealth. 

And  in  all  this  they  would  not  have  been  far  wrong,  if  for 
a  nation  to  advance  in  wealth  and  population  were  synony- 
mous with  its  augmenting  in  prosperity  or  happiness.  But 
such  is  by  no  means  a  matter  of  course.  An  increase  of 
numbers,  even  when  accompanied  by  a  corresponding  increase 
of  national  wealth,  can  scarcely  be  desired,  should  it  at  the 
same  time  imply  a  deteriorating  of  the  general  condition  of  a 
people.  This  will,  in  fact,  be  the  case  when  the  increase  of 
wealth  has  resulted  from  an  excessive  degree  of  saving.  For 
then  the  slyle  of  living  among  those  classes  of  the  community 
who  can  best  afford,  and  who  are  therefore  expected,  to 
expend  the  most  for  the  consumption  of  themselves  and  fami- 
lies, will  be  lowered  ;  and  with  it  that  standard  of  enjoyment 
must  also  be  lov/ered,  to  attain  which  will  be  the  constant 
aim  of  the  poorer  classes.     They  will  in  consequence,  on  the 

39 


302  THE  PRINCIPLES  OV 

principles  established  in  my  second  book,  accustom  themselves 
gradually  to  a  diminished  command  over  the  necessaries  and 
luxuries  of  life. 

But  it  may  be  said  that,  in  the  part  of  the  present  treatise 
now  referred  to,  the  acquisition  by  the  poorer  classes  of 
habits  of  saving  has  been  as  earnestly  inculcated  upon  them 
as  the  acquisition  of  a  more  extended  desire  for  necessaries 
and  luxuries.  Would  not,  then,  the  example  of  the  wealthy 
when  they  save,  be  quite  as  beneficial  to  the  poor  as  when  they 
expend,  their  incomes  ?  It  seems  to  me  that  it  would  not  be ; 
because  the  amount  which  is,  in  the  actual  condition  of  things, 
saved  by  the  poor,  bears  no  comparison  with  the  amount 
expended  by  them  ;  and  because,  under  the  most  favourable 
circumstances,  their  savings  cannot  be  expected  to  be  other- 
wise than  inconsiderable. 

Experience  informs  us,  however,  that  a  large  expenditure 
by  the  rich,  upon  their  own  unproductive  consumption,  is  by 
no  means  always  contemporary  with  an  elevated  rate  of  living, 
or  what  is  very  nearly  the  same  thing,  with  the  receipt  of  a 
high  rate  of  wages,  by  the  labourers  generally.  So  far  from 
it,  that  we  find,  not  unfrequently,  the  great  body  of  a  people 
to  be  most  degraded  where  a  class  possessed  of  overgrown 
wealth  exist  in  the  midst  of  them,  spending  their  means  pro- 
fusely on  all  manner  of  extravagances  and  luxuries.  I  am 
disposed  to  think,  that  any  example,  in  respect  to  expenditure, 
which  may  be  set  to  the  poorer  classes  of  the  community  by 
those  whom  Providence  has  placed  in  easier  circumstances, 
will  be  calculated  to  have  little  or  no  beneficial  effect,  unless 
the  latter  class  of  persons  be  not  a  great  deal  more  wealthy 
than  the  former,  and  be  moreover  sufficiently  numerous  to  be 
found  in  every  neighbourhood.  And,  perhaps,  it  would  not  be 
incorrect  to  attribute  even  an  injurious  influence  to  great 
wealth,  expended  in  the  manner  above  described ;  since,  by 
the  total  improbability  of  competing  with  it  on  the  part 
of  the  great  body  of  the  people,  it  will  have  a  tendency  to 


POLITICAL  ECONOMY-.  803 

check,  rather  than  to  stimulate,  their  efforts  to  better  their 
condition. 

On  a  comparison  of  what  has  been  said  concerning  the 
effects, of  saving  a  greater  or  a  less  portion  of  the  incomes  of 
individuals,  I  think  it  would  be  extremely  difficult,  and  I  may- 
say  impossible,  for  the  poUtical  economist  to  form  any  defi- 
nite opinion  as  to  how  much  of  his  income  a  man  ought  to 
spend,  and  how  much  of  it  he  ought  to  save,  in  reference  to  the 
public  welfare.  The  conduct  of  each  person  must  be  regu- 
lated, in  the  matter,  by  the  same  prudential  considerations 
which  determine  his  course  of  action  in  the  affairs  of  every 
day  life. 

Having  come  to  the  conclusion  that  every  individual  of 
society  is  quite  as  good  a  judge  of  the  most  expedient  mode  of 
distributing  his  income  between  his  productive  and  his  unpro- 
ductive consumption  (regard  being  had  as  well  to  the  public 
as  to  his  own  welfare)  as  the  pohtical  economist  can  be  for 
him, — it  is  almost  tautology  to  add,  that  he  is,  in  general, 
better  fitted  to  judge  for  himself,  of  the  most  expedient  mode 
of  distributing  his  income,  than  the  government,  or  any 
statesman,  can  possibly  be.  In  my  opinion,  all  that  the  govern- 
ment should  here  undertake  to  do,  is  to  remove,  wherever 
any  may  exist,  every  artificial  cause  of  the  accumulation  of 
large  fortunes  in  particular  families  ;  such  as  laws  of  primo- 
geniture, and  laws  for  preventing  the  alienation  of  landed 
estates.  When  this  shall  have  been  accomplished,  it  may 
safely  leave  things  to  their  natural  course ;  perfectly  satisfied 
that,  where  man's  wisdom  is  at  a  stand,  an  adequate  provision 
will  have  been  made  by  nature,  or  to  speak  more  accurately, 
by  the  Author  of  nature,  for  the  attrainment  of  the  greatest 
amount  of  human  happiness,  which,  under  the  circumstances, 
is  attainable. 


804  THE  PRINCIPLES  OF 


CHAPTER  II. 

MODE     m     WHICH    GOVERIVMENTS    HAVE    INTERFERED    WITH    THE 

UNPRODUCTIVE     EXPENDITURE      OF      INDIVIDUALS  MISTAKEN 

NOTIONS    BY  WHICH  THE  ACTION  OF  GOVERNMENTS    HAVE  BEEN 

SOMETIMES    INFLUENCED APPLICATION    OF    THE  PRINCIPLES    OP 

POLITICAL  ECONOMY  TO  THE  "  TEMPERANCE  QUESTION  ;"  AND 
TO  THE  BESTOWING  OF  MONEY  FOR  RELIGIOUS  AND  PHILANTHRO- 
PIC PURPOSES. 

For  the  government  of  a  country  directly  to  interfere  with 
the  natural  distribution  of  the  weaUh  produced,  by  dictating 
to  the  individuals  under  its  control  how  much  they  are  to 
expend  productively,  and  how  much  unproductively,  would 
have  been  altogether  too  obvious  an  infringement  of  the  rights 
of  property,  to  be  ventured  upon  with  impunity,  in  an  improved 
state  of  society.  The  same  thing  in  effect  has  been,  however, 
attempted  in  more  ways  than  one  indirectly. 

Sumptuary  laivs  have,  for  instance,  been  enacted,  for  the 
purpose  of  checking  the  advances  of  luxury.  To  consume 
certain  articles,  has  been  pronounced  by  legislative  authority 
to  have  a  tendency  to  corrupt  or  enervate  the  character  of  a 
people ;  and  their  consumption  has,  accordingly,  been  either 
entirely  prohibited,  or  rendered  expensive  by  taxing  them 
more  or  less  heavily.  Even  though  the  proceeds  of  this  taxa- 
tion were  needed  for  supplying  the  necessary  expenditure  of 
the  government,  and  were,  for  this  reason,  a  transfer  of  the 
unproductive  consumption  of  individuals,  to  become  the  pro- 
ductive consumption  of  the  government,  the  measures  adopted 
would  not  be  therefore  rendered  proper.  The  public  treasury 
could  be  supplied,  to  the  requisite  amount,  without  disturbing 
the  natural  distribution  of  labour  and  capital,  and  without 


POLITICAL  EC03V0M\,  305 

the  inequality  and  injustice  of  taxing  one  class  of  the  con- 
sumers only. 

I  may  here  observe  that  governments  have  not  been  alv^^ays 
so  enlightened  in  their  views,  concerning  the  wealth  of 
nations,  as  is  implied  by  the  taxation  of  unproductive  in 
preference  to  productive  consumption.  They  have  sometimes 
proclamied,  as  a  principle  of  action,  the  doctrine  that  it  was 
a  matter  of  no  moment  whatever  how  the  incomes  of  indivi- 
duals, and  their  own  incomes  too,  were  spent ;  but  that  what 
was  really  important  was,  that  those  incomes  should  indeed  be 
spent,  and  not  saved.  The  public  expenditure  was  seriously 
maintained  to  be  so  much  of  the  people's  property,  which, 
after  having  been  taken  from  them,  was  again  returned  to 
them,  undiminished  in  amount  by  its  being  for  a  time  out  of 
their  possession.  And  the  practice  of  the  governments  alluded 
to  was,  very  naturally,  not  seldom  in  entire  conformity  with 
this  theory.  Taxation  was  occasionally  pushed  by  them  to 
the  limits  of  endurance, — limits  removed  to  a  remoter  distance 
by  the  military  force  which  was  kept  in  readiness  to  suppress 
the  incipient  efforts  of  popular  insurrection. 

In  the  mean  time,  however,  political  science  has  been 
advancing,  and  has  found  its  way,  to  a  certain  extent,  from 
the  writings  of  the  philosopher  into  the  cabinet  of  the  slates- 
man.  Governments  now  a  days,  accordingly,  do  not  put 
forth  opinions  so  utterly  absurd  and  ruinous,  as  those  I  have 
been  animadverting  upon.  There  are  very  few  persons,  too, 
who  now  venture,  in  the  intercourse  of  society,  to  express  any 
such  opinions  in  relation  to  the  action  of  government; 
although,  it  is  true,  we  still  frequently  hear  them  maintained 
in  reference  to  the  action  of  individuals.  Most  of  my  readers 
will  probably  remember,  more  particularly,  having  at  some 
time  or  other  heard  the  remark  adduced,  in  palliation,  if  not 
in  justification,  of  an  apparent  extravagance  of  individual 
expenditure,  that  the  money  expended  ivas  thus  7nade  to  circu- 
late, and  for  this  reason,  to  benefit  the  community ;  while,  in 


306  THB   PRINCIPLES    OP 

Other  respects,  no  disadvantage  was  incurred  by  them,  because 
what  was  one  man's  loss,  in  consequence  of  the  expenditure  in 
question,  was  another's  gain. 

The  student  of  poUtical  economy,  who  has  read  and  under- 
stood the  preceding  part  of  the  present  treatise,  I  hope  will 
need  no  farther  aid  from  me  in  this  place,  to  enable  him  at 
once  to  refute  the  errours  above  mentioned  ;  and  I  shall,  there- 
fore, without  delay  proceed  to  another  topic. 

There  are  some  articles,  to  consume  which,  or  to  consume 
which  to  the  extent  in  which  they  are  actually  consumed,  has 
an  injurious  effect  upon  society.  Hence,  a  sentence  of  con- 
demnation, either  wholly  or  partially,  as  the  case  may  be,  has 
been  passed  upon  them  by  the  moralist.  And  the  philanthro- 
phist  and  the  christian  have  latterly  exerted  themselves  in  the 
instance  of  unquestionably  the  most  injurious  of  these,  viz. 
spirituous  liquors,  to  diminish  their  consumption  as  much  as  is 
practicable.  Success  of  no  ordinary  magnitude  has  already 
rewarded  those  exertions.  A  still  greater  degree  of  it,  also, 
may  be  eventually  expected.  The  question  now  occurs : — 
Can  the  political  economist  add  any  arguments  of  his  own  to 
those  which  present  themselves  to  the  mind  of  every  reflecting 
man,  and  which  have  been  repeatedly  and  impressively  urged 
upon  the  community  to  enlist  them  in  the  cause  of  temperance  ? 
Or,  in  other  words,  can  he  contribute  any  thing  to  render  the 
victory  over  intem'perance  more  speedy,  and  more  decisive  ? 
This  is  an  important  question  ;  and  the  answer  to  it  deserves 
to  be  well  considered. 

Here,  as  in  a  case  previously  before  us,  I  hold  that  the 
moralist  can  derive  no  additional  light  from  the  science  of 
political  economy,  to  exhibit  more  clearly  the  evils  of  intem- 
perance, as  well  as  the  tendency  of  the  use  in  any  degree  of 
spirituous  liquors  to  become  an  abuse  of  the  worst  possible 
description,  than  any  unprejudiced  man  of  good  sense  is  capa- 
ble of  doing.  The  arguments  against  their  use  which  have 
been  advanced  on  the  ground  ofthe  extraordinary  expenditure 


POLITICAL   ECONOMY.  307 

incurred,  and  consequently  of  the  extraordinary  amount  of 
the  labour  and  capital  employed,  in  procuring  them, — which 
labour  and  capital  might  far  better  have  been  employed  to 
procure  the  means  of  promoting,  in  various  ways,  the  cause 
of  religion,  of  morals,  or  of  education, — are  applicable,  to  a 
greater  or  less  extent,  to  shew  the  propriety  of  the  reduction, 
on  the  part  of  most  of  the  members  of  a  community,  of  their 
unproductive  consumption  generally.  Without  doubt,  if  a 
man  would  consent  to  appropriate  the  value  of  the  spirituous 
liquors  he  is  in  the  habit  of  consuming  to  philanthrophic  pur- 
poses, he  would  be  doing  a  very  laudable  act.  But  the  same 
thing  may  be  said  of  him  who,  for  a  like  purpose,  foregoes 
the  personal  gratification  derived  from  any  other  portion  of 
his  unproductive  expenditure, — from  what,  for  example,  is 
expended  by  him  on  tobacco, — in  entertaining  his  friends, — 
or  even  on  his  own  food  and  clothing.  Politico-economically 
speaking,  all  these,  being  objects  of  men's  desire,  are  to  be 
regarded  as  useful  objects  ;  and  their  utility  to  any  individual, 
in  the  circumstances  in  which  he  is  actually  placed,  must  be 
estimated  by  the  labour,  or  the  products  of  labour,  which  he 
is  willing  to  give  in  exchange  for  them,  rather  than  be  without 
them.  And  the  argument  against  the  use  of  spirituous  liquors, 
in  so  far  as  it  applies  with  greater  force  to  those  liquors  than 
to  any  other  article  of  consumption,  is  altogether  a  moral 
one,  and  is,  besides,  not  in  any  degree  on  this  account  the 
weaker. 

Now  and  then  we  hear  of  a  grocer  becoming  a  convert  to 
the  "  temperance  cause,"  and  not  only  coming  under  an 
obligation  to  abstain  altogether  from  consuming  spirituous 
hquors,  but  hkewise,  from  a  sense  of  duty,  pouring  out  upon 
the  ground  the  stock  of  that  article  w^hich  he  may  happen  to 
have  in  his  possession,  in  order  to  prevent  its  consumption  by 
any  one  else.  By  acting  thus,  he  gives  the  strongest  evidence 
the  case  admits  of  the  sincerity  of  his  conversion,  as  well 
as  produces  the  greatest  possible  moral  impression  on  the 


308  THE    PRINCIPLES   OP 

minds  of  other  men.  To  produce  this  impression  is  plainly  a 
very  important  object,  and  it  may  be  highly  desirable  that 
instances  of  the  kind  described  should  occasionally,  or  even 
frequently,  occur.  Nay,  I  may  go  so  far  as  to  say  that  it  may 
be  difficult  to  conceive  how  a  dealer  in  spirituous  liquors, 
professing  to  be  a  sudden  convert  to  the  sin  of  consuming 
them,  could  be  sincere  and  yet  act  otherwise.  Nevertheless, 
it  is  proper  that  the  poUticO'economical  effect  produced  in  the 
case  should  be  rightly  understood,  although  to  understand  it 
rightly  might  seem  to  weaken  the  motive  for  well-doing  ;  Nand 
this  on  the  incontrovertible  principle  that  whatever  apparent 
inconveniences  may  be  connected  with  the  substitution  of  truth 
for  errour,  the  ultimate  consequences  to  ensue  must  of  neces- 
sity be  salutary.  The  effect  adverted  to  is  very  easily  to  be 
traced.  When  the  stock  of  spirituous  liquors  in  any  market 
is  diminished,  their  price  must  rise,  and  they  will  be  produced 
in  greater  quantity,  until  the  supply  is  once  more  accommo- 
dated to  the  demand.  But  to  suppose  the  spirituous  liquors 
destroyed  to  be  in  any  degree  replaced  by  an  increased  pro- 
duction of  the  same  article,  fs  manifestly  equivalent  to  sup- 
posing that  the  production  of  other  commodities  generally 
will  take  place  to  a  less  extent  than  before.  It  follows, 
therefore,  that  every  constituent  element  of  the  national  wealth 
will  be  proportionally  diminished.  And  so  long  as  the  desires 
of  men  continue  unchanged,  any  attempt  to  lessen  the  con- 
sumption of  spirituous  liquors,  by  destroying  a  portion  of  the 
existing  stock  of  them,  will  have  the  desired  effect  in  no 
greater  degree  than  the  destruction  of  an  equal  value  in 
houses,  furniture,  clothing,  or  any  other  description  of  property 
would  have ;  for  the  above  reasoning  is  general,  and  not 
applicable  to  spirituous  liquors  alone.  Let  the  reader  apply 
it  to  the  case  say  of  a  theatre,  or  of  a  church,  and  he  will 
satisfy  himself  of  the  correctness  of  what  I  say. 

In  this  age  of  extended  christian  and  philanthrophic  effort, 
considerable  sums  of  money  are,  from  time  to  time,  collected 


POLITICAt    ECONOMY.  309 

and  disposed  of,  with  the  direct  object  in  view  of  meliorating 
the  moral  or  physical  condition  of  our  fellow-men.  Such  an 
expenditure  as  this  has  been  objected  to  by  some,  who  have 
supposed  themselves  to  be  arguing  on  the  principles  of  the 
political  economist,  when  they  maintain  it  to  be  so  much 
taken  from  the  sum  of  the  national  wealth  and  expended 
without  any  return.  Their  errour  is  a  two-fold  one.  They 
do  not  perceive,  in  the  first  place,  that  their  argument  is 
applicable  to  every  instance  of  expenditure  for  the  purpose  of 
ministering  to  the  unproductive  consumption  of  individuals ; 
and  that  they  might,  therefore,  quite  as  well  object  to  a  man's 
wearing  two  coats  or  two  hats,  where  he  could  get  along 
with  only  one,  as  object  to  a  partial  appropriation  of  a  man's 
income  for  benevolent  purposes, — even  though  it  were  in  this 
case  to  be  consumed  unproductively.  But  secondly,  what  is 
thus  appropriated  is  not,  by  any  means,  consumed  unproduc- 
tively ;  since,  in  consequence  of  its  consumption,  much  wealth, 
— sometimes  material,  and  sometimes  immaterial, — is  pro- 
duced. The  reader  will  recollect  the  sense  in  which  the  terms 
employed  here  have  been  defined. 

More  than  once  I  have  heard  the  fact  of  a  liberal  donation 
for  some  religious  object,  by  some  poor  widow,  or  other  person 
in  comparatively  narrow  pecuniary  circumi.stances,  stated  in 
a  manner  to  imply  that  the  party  was  guilty  of  an  absurdity, 
if  not  of  a  crime,  in  what  had  been  done.  It  was  assumed  as 
a  manifest  truth  that  it  would  be  much  better  for  all  such 
persons  to  devote  their  means  to  the  present  or  future  support 
of  themselves  and  families  ;  and  to  leave  the  field  of  christian 
benevolence  to  be  occupied  exclusively  by  the  more  wealthy 
portion  of  the  religious  community.  So  far  from  this  opinion 
being  sanctioned  by  the  conclusions  of  political  economy,  any 
more  than  they  are  by  the  precepts  of  the  gospel,  I  cannot 
but  look,  consistently  with  those  conclusions  as  deduced  in 
the  preceding  part  of  this  work,  upon  a  state  of  things  in  which 
considerable  sums  are  contributed  voluntarily  by  the  poorer 

40 


310  THE  PRINCIPLES  OF 

classes  for  religious  and  other  philanthropic  purposes,  as 
indicative  of  their  having  attained  to  a  considerable  elevation 
of  character,  and  therefore  to  a  more  than  ordinary  com- 
mand over  the  necessaries  and  luxuries  of  Hfe.  Shew  me 
a  people  who  estimate  highly  the  advantages  of  religion,  of 
morals,  and  of  education,  and,  as  I  have  in  substance  more 
than  once  observed,  I  will  shew  you  a  people  among  whom 
wages  are  high. 

Where  the  money  which  has  been  collected,  and  of  which 
I  am  speaking,  is  sent  out  of  the  country,  as  in  the  case  of  the 
sums  appropriated  to  the  support  of  foreign  missions  for  the 
propagation  of  Christianity,  the  parties  referred  to  have  been 
particularly  loud  in  their  objections, — from  the  circumstance 
of  the  money  expended  having  the  appearance  more  unequi- 
vocally of  being  without  a  return.  Looking  at  the  moral 
effects  on  the  minds  of  the  donors,  as  well  as  at  those  which 
may  be  ultimately  anticipated  to  take  place  in  every  country 
from  the  more  general  diffusion  of  the  blessings  of  our  religion, 
we  may  confidently  deny  that  the  money  expended  is  expended 
without  a  return.  But  though  this  were  in  reality  the  case, 
the  loss  to  the  country  would  be  neither  more  nor  less  than 
what  results  from  every  unproductive  expenditure  of  equal 
value ;  and,  to  be  consistent  with  themselves,  the  objectors 
ought  therefore  to  declare  war  against  every  unproductive 
expenditure,  excepting  only  what  is  required  for  procuring 
the  necessary  means  to  sustain  our  bodily  existence.  And 
after  what  has  been  delivered  on  the  subject  of  money,  I  need 
not  surely  here  waste  a  moment  of  my  readers'  time  in  again 
proving  to  them  that  to  send  money  abroad,  rather  than  com- 
modities of  a  different  description,  is  a  matter  of  not  the  least 
consequence  in  its  bearing  on  the  progress  of  national  wealth. 


POLITICAL    BCONOMr.  311 


CHAPTER  III. 

OUGHT  A  PREFERENCE  TO  BE  GIVEN  TO  ONE  BRANCH  OF  INDUSTRY 
OVER  ANOTHER,  BECAUSE  OF  THE  GREATER  NUMBER  OF  LABOUR- 
ERS   EMPLOYED    BY  A  GIVEN  AMOUNT    OF    CAPITAL  1 WHETHER 

ROADS  AND  CANALS  SHOULD  BE  CONSTRUCTED  BY  GOVERNMENTS, 
OR  BY  INDIVIDUALS  ? 

The  rates  of  profits  and  of  vrages,  when  left  to  regulate 
themselves,  will  tend  to  become  equalised  in  all  the  various 
branches  of  industry.  Political  economists  are,  for  this  reason, 
agreed  in  regarding  all  of  these  as  equally  advantageous  to  a 
country.  But  is  not  the  circumstance  of  one  branch  of 
industry  having  a  larger  proportion  than  another  of  fixed, 
when  compared  to  circulating  capital,  a  sufficient  reason  for 
making  a  distinction  between  them,  in  reference  to  the  pubhc 
welfare, — because  the  number  of  labourers  to  whom  em- 
ployment is  afforded  by  a  given  capital  is  always  de- 
termined in  a  greater  degree  by  the  circulating  portion  of 
it?  And  ought  not  the  government  to  disturb  the  natural 
distribution  of  capital,  by  causing  a  greater  amount  of  it  to  be 
invested  in  the  employments  where  the  circulating  portion  of 
it  predominates  over  the  fixed  portion  ?  I  remark  in  reply, 
that,  if  no  savings  were  ever  made  from  the  wages  of  labour, 
the  interests  of  the  capitalists  need  alone  be  regarded  in  deter- 
mining the  most  advantageous  distribution  of  capital ;  and  I 
need  not  here  repeat  the  reasons  why  the  natural  distribution 
of  it  is  that  which  is  best  fitted  to  promote  those  interests,  by 
establishing  the  highest  possible  rate  of  profit.  A  very  small 
difference  in  this  rate,  in  favour  of  the  capitalist,  will,  on  the 
supposition  now  made,  give  rise  to  a  more  rapid  accumulation 
of  capital,  and  therefore  a  more  rapid  increase  of  wealth  and 


312  THE  PRINCIPLES  OF 

population  than  would  otherwise  take  place  ;  and  will  deter- 
mine, at  a  period  more  or  less  distant,  the  existence  in  any 
country  of  a  greater  number  of  inhabitants  than  would  then 
'  exist  were  the  natural  order  of  things  to  be  disturbed  in  the 
manner  suggested. 

Savings  are,  however,  in  fact  made  by  the  labourers ;  espe- 
cially by  those  labourers  who  receive  a  high  rate  of  wages. 
Now  even  taking  this  circumstance  into  consideration,  I  hold 
to  the  expediency  of  not  interfering  with  the  natural  course  of 
things,  for  the  following  reasons.  First,  fixed  and  circulating, 
as  applied  to  capital,  are  merely  relative  terms,  and  the  degree 
of  fixedness  is  so  very  various  as  to  render  any  equitable 
interference,  of  the  kind  now  under  consideration,  with  the 
different  branches  of  industry,  extremely  difficult  on  the  part 
of  the  government, — and  it  is  evident  that  it  is  the  government 
only  that  can  interfere  in  the  matter  to  any  effectual  purpose. 
Secondly,  any  interference  by  the  government  in  the  present 
instance  necessarily  imphes  a  very  inquisitorial  and  annoying 
system  of  intermeddling  with  the  concerns  of  individuals. 
Thirdly,  the  government  could  not  interfere  in  favour  of 
employments  in  which  the  capital  invested  is  chiefly  circulat- 
ing, without  setting  itself  in  opposition  to  the  progress  of 
human  invention,  and  endeavouring  to  check  the  progress  of 
improvement  in  the  arts  ;  a  policy  on  which  no  government 
has  hitherto  acted,  and  which  no  one  will  be  found  to  justify, 
however  hostile  he  may  be  to  the  principles  of  free  trade.  I 
have  said  that  the  adoption  of  such  a  course  by  the  govern- 
ment of  a  country  is  for  it  to  endeavour  to  check  the  progress 
of  improvement,  because  that  progress  is  always  accompanied 
by  the  substitution  of  fixed  for  circulating  capital.  Indeed  if 
this  were  otherwise,  man's  labour  could  not  become  more  and 
more  productive,  and  there  would  be  no  room  for  improvements 
to  take  place.  And  lastly,  according  as  fixed  is  substituted 
for  circulating  capital,  the  processes  of  production  will 
become  continually  more   and  more  compUcated,   and  the 


POLITICAL  ECONOMY.  313 

number  of  labourers  who  receive  a  comparatively  higher  rate 
of  wages  will,  in  consequence,  be  augmented  ;  and  as  the 
savings  which  are  made  from  wages  are  in  a  far  greater 
degree  made  from  the  wages  of  those  labourers  who  receive 
the  higher  than  from  the  wages  of  those  who  receive  the 
lower  rates,  this  circumstance  alone  may  be  regarded  as  suffi- 
cient to  counterbalance  the  disadvantage  of  fixed  capital  giving 
employment  to  a  less  number  of  labourers. 

Of  all  the  branches  of  material  industry  there  is  none  which 
has  been  regarded  as  calling,  in  so  great  a  degree,  for  the 
interference  of  the  government,  as  that  of  constructing  the 
means  of  communication,  and  of  transportation,  from  one 
district  or  region  of  a  country  to  another.  That  any  private 
individual  should  be  empowered  to  make  a  road  or  canal,  at 
his  pleasure,  through  his  neighbour's  property,  even  though  he 
should  pay  him  the  full  value  of  the  ground  taken  from  him  for 
th»-  purpose,  has  been  every  where  put  out  of  the  question  as 
a  moral  absurdity.  And  the  public,  as  well  as  the  political 
economists,  are  divided  in  opinion  into  two  classes,  as  to  the 
most  expedient  instrumentality  by  means  of  which  roads  and 
canals  should  be  constructed ;  the  one  class  maintaining  the 
expediency  of  their  being  constructed  by  agents  appointed  by 
the  government,  and  directly  accountable  to  it,  and  the  other 
the  expediency  of  their  being  constructed  by  individuals  or 
companies  of  individuals,  simply  acting  under  its  authority, — 
the  net  proceeds  of  the  tolls  exacted  going  in  the  former  case 
into  the  public  treasury,  and  in  the  latter  into  the  coffers  of 
the  individuals  or  companies  concerned. 

It  has  been  maintained,  on  the  one  hand,  that  there  can  be 
no  better  criterion  of  the  expediency  of  constructing  a  new 
road,  between  two  different  points  of  a  country,  than  the 
willingness  of  individuals  to  invest  their  capital  in  its  construc- 
tion, on  the  condition  of  the  finished  road  becoming  their 
exclusive  property;  of  which  criterion  the  country  will  be 
deprived  by  the  government  undertaking  to  be  the  sole  or  the 


314  THE  PRINCIPLES  OP 

principal  constructor  and  proprietor  of  its  roads.  The  chief 
argument,  however,  against  the  direct  interference  of  the 
government  in  the  business  of  road-making,  is  the  greater 
costUness  of  whatever  is  produced  by  it  through  the  instrumen- 
tality of  its  agents,  when  compared  with  the  cost  of  produc- 
tion where  the  agents  employed  are  either  themselves 
personally  interested,  or  are  closely  superintended  by  those 
•who  are  personally  interested,  in  the  work  to  be  performed 
being  accomplished  in  the  most  economical  manner. 

Those  who  prefer  the  immediate  action  of  the  government 
in  the  case  object  strongly,  on  the  other  hand,  to  the  creation 
of  large  incorporations,  for  road-making  as  for  any  other 
purpose,  at  least  where  the  necessity  of  their  existence  cannot 
be  distinctly  exhibited ;  and  this  objection  they  are  especially 
urgent  in  pressing  when,  as  not  unfrequently  happens,  it  is 
proposed  to  confer  on  the  company  incorporated  the  monopoly, 
for  a  long  term  of  years,  of  conveying  passengers  and  goods 
from  one  place  to  another.  Such  a  monopoly,  it  is  true,  is 
seldom  or  never  formally  conferred.  But  it  may,  in  eflect, 
result  from  an  obligation  which  the  legislature  may  choose  to 
impose  upon  itself,  not  to  permit  the  construction  of  any 
similar  line  of  communication  between  the  extremities,  or 
within  a  certain  distance,  of  the  one  the  construction  of  which 
it  may  at  the  time  authorise  ;  or  the  parties,  in  whose  behalf 
the  legislature  has  been  pleased  to  act,  may  have  the  exclusive 
privilege  granted  to  them  of  conveying  passengers  or  goods 
along  their  route  in  a  particular  manner, — this  manner  being 
the  most  expeditious  and  most  desirable  manner.  Even, 
however,  should  the  company  incorporated  possess  no  privi- 
leges of  the  kind  just  mentioned,  it  will  possess  the  power,  in 
an  extraordinary  degree,  which  is  incident  to  the  application 
of  a  large  capital  directed  by  a  single  individual,  or  combina- 
tion of  individuals,  to  any  employment,  of  whatever  nature  it 
may  be.  It  will  find  it  practicable  to  prevent  the  competition, 
to  a  certain  extent,  of  all  other  parties  who,  in  the  natural 


POLITICAL  ECONOMY.  315 

course  of  things,  might  be  disposed  to  compete  with  it,  by  the 
circumstance  of  its  being  in  possession  of  the  field  of  action. 
Another  road  will  not  be  constructed  along  side  of  an  existing 
one,  unless  there  be  a  fair  prospect  of  deriving  from  it  the 
ordinary  rate  of  profits  ;  and  this  cannot  happen  unless  the 
new  road  be  a  considerable  improvement  on  the  other,  or  the 
profits  received  by  the  proprietors  of  the  other  considerably 
exceed  the  ordinary  rate.  If  at  any  time,  too,  the  opinion 
should  become  prevalent  that  the  proprietors  of  a  road  are 
making  extraordinary  profits  on  the  capital  invested  by  them 
in  its  construction,  and  other  capitalists  should,  in  consequence, 
begin  to  discuss  the  project  of  a  new  road,  the  former  could 
often  postpone,  or  even  prevent  altogether,  the  execution  of 
it,  by  temporarily  lowering  the  rate  of  toll  exacted  by  them 
from  the  passenger  or  the  merchant. 

Again,  apart  from  the  objection  I  have  been  considering, 
founded  upon  the  inequality  of  the  privileges  enjoyed  by  the 
different  classes  of  capitalists,  it  is  argued  that,  if  a  road  or 
canal  is  to  be  a  profitable  speculation,  it  is  proper  that  the 
people  in  general  should  have  the  benefit  of  it,  through  the 
government,  which  is  their  agent  acting  in  their  behalf,  in 
order  to  he  relieved  to  a  certain  extent  from  taxation, ;  while, 
on  the  contrary,  if  the  speculation  is  to  be  an  unprofitable 
one,  neither  the  government  nor  any  other  party  should 
embark  in  it.  In  other  words,  if  the  work  referred  to  is  worth 
doing  at  all,  it  ought  to  be  performed  by  the  government. 

Perhaps  the  proper  conclusion,  on  comparing  both  sides  of 
the  question  under  consideration,  as  they  have  just  been 
stated,  is  for  all  roads  and  canals  to  be  constructed  by  indivi- 
duals or  companies  of  individuals,  acting  under  a  legislative 
authority, — on  condition  of  their  being  permitted  to  enjoy, /or 
a  term  of  years  only,  all  the  profits  resulting  from  the  tolls  to 
be  exacted,  these  tolls  being  at  the  same  time  forbidden  by  the 
law  to  exceed  a  certain  rate.  There  is  room  for  the  exercise 
of  much  judgment  in  determining  th©  length  of  this  terra  of 


316  THE  PRINCIPLES  OF 

years,  as  well  as  in  fixing  the  rate  of  toll  which  is  not  to  be 
exceeded.  Every  effort  should  be  made  so  to  adjust  these  as, 
on  the  one  hand,  not  to  raise  up  any  undue  obstacle  to  the 
progress  of  improvement,  and,  on  the  other,  to  secure  to  the 
country  the  benefit  of  an  interested  agency  in  the  superin- 
tendence of  that  progress,  without  making  too  great  a  sacrifice 
to  the  grasping  spirit  of  monopoly.  At  the  expiration  of  the 
period  during  which  the  parties  of  whom  I  have  been  speak- 
ing are  permitted  by  the  law  to  enjoy  the  property  of  the 
works  constructed  by  them,  these  may  become  the  property 
of  the  public  at  a  price  equivalent  to  their  original  cost,  or 
at  any  other  stipulated  price. 

In  what  has  just  been  stated  the  necessity  is  implied  for 
legislation  in  reference  to  the  construction  of  roads.  All  laws 
on  the  subject  should,  however,  be  as  general  as  possible,  in 
order  to  secure  the  greatest  degree  of  impartiality  towards 
every  individual  and  every  district  of  a  country,  both  as  to  the 
benefit  rendered,  and  the  damage  to  property  which  cannot 
fail  to  be  to  a  certain  extent  incurred.  Provision,  it  seems  to 
me,  might  be  made  by  a  single  law  for  every  case  that  may 
present  itself.  A  tribunal,  for  example,  might  be  constituted, 
or  rather  the  mode  pointed  out  of  constituting  a  tribunal,  to 
decide  on  the  roads  or  canals  proposed  to  be  constructed,  and 
to  decide  concerning  their  expediency  or  inexpediency,  upon 
principles  established  by  the  legislature  ;  principles  having  for 
their  object  to  determine  how  far  the  public  good,  viewed  on 
the  most  extensive  scale,  justifies  an  interference  with  private 
property  without  the  consent  of  the  owner  being  first  obtained, 
as  well  as  to  protect  the  holders  of  real  estate  from  having  a 
road  at  any  time  cut  through  their  property  by  persons 
who  are  actuated  by  motives  of  hostility  to  them,  or  by  other 
improper  motives. 


POLITICAL    ECONOMr.  317 


CHAPTER  IV. 

ENCOURAGEMENT  OF  INTELLECTUAL  PRODUCTS. 

We  come  now  to  a  class  of  producers  who  are  very  gene- 
rally acknowledged  to  have  peculiar  claims  to  encouragement, 
as  well  from  the  more  enlightened  portion  of  the  community, 
as  from  the  government.  I  mean  that  class  whose  products  are 
of  an  intellectual  or  immaterial  character. 

The  grounds  of  a  distinction  here  are,  jirst,  that  while 
almost  every  individual  may  be  looked  upon  as  estimating, 
with  sufficient  accuracy,  the  relative  advantages  which  the 
diflcrent  descriptions  of  material  wealth  are  capable  of 
affording  him,  such  is  far  from  being  the  fact  in  respect  to 
intellectual  products.  No  recondite  knowledge  of  human 
nature  is  requisite  to  satisfy  any  reflecting  mind  that,  without 
the  species  of  encouragement  now  adverted  to,  the  great 
body  of  the  people,  even  in  countries  where  civihsation  exists 
in  the  highest  degree  to  which  it  has  yet  attained,  would 
advance  very  slowly,  if  at  all,  in  the  career  of  improvement. 
Indeed,  to  me  it  is  apparent  that,  but  for  the  efforts  which 
have  been  made,  and  which  will  continue  to  be  made,  by  the 
more  enlightened  portion  of  society,  to  diffuse  the  blessings  of 
education,  of  morals,  and  of  religion,  as  extensively  as  possible 
among  their  fellow-men,  and  made  irrespective  too  of  any 
previously  existing  demand  among  the  latter  for  those  bless- 
ings, mankind  W'ould  degenerate  into  a  state  of  hopeless 
barbarism. 

The  second  ground  of  distinction  in  the  present  case,  in 
favour  of  the  intellectual  products  which  have  been  men- 
tioned, is,  that  every  individual  of  a  nation,  or  of  the  great 
community  of  mankind,  is  interested  in  their  being  diffused, 
and,  to  speak  technically,  consumed,  to  the  greatest  practi- 

41 


318  THE    PRINCIPLES  OF 

cable  extent.  In  a  country  like  our  own  especially,  where 
the  right  of  suffrage  is  enjoyed  by  almost  every  adult  male 
citizen,  and  is  exercised  at  comparatively  short  intervals, 
where  too,  in  consequence,  the  government  is  under  the  direct 
control  of  the  people,  the  importance  of  their  being  an 
educated,  a  moral,  and  a  religious  people,  cannot  be  too 
strongly  felt,  and  acted  upon. 

I  have  before  stated  that  what  it  was  the  duty  of  an  indi- 
vidual to  do  in  reference  to  the  national  welfare,  it  was, 
generally  speaking,  the  duty  of  the  government  of  a  country 
likewise  to  do.  An  exception  to  this  is  presented  to  us  in  the 
case  of  religion ;  at  least  in  the  opinion  of  every  American. 
We  are  unanimous  in  thinking  that  the  cause  of  religion  is 
injured,  instead  of  benefited,  by  an  alliance  with  men  in 
power,  and  that  an  entire  equality  of  civil  privileges  on  the 
part 'of  the  diflerent  religious  sects  is  better  adapted  than  any 
other  condition  of  things  to  turn  them  from  vain  speculations, 
and  fruitless  controversies  with  each  other,  to  the  exercise  of 
a  practical  piety.  To  give  the  reasons  for  this  our  opinion, 
would  hardly  be  in  place  in  a  treatise  of  political  economy ; 
and  it  is  the  less  necessary  here,  because,  if  the  opinion  were 
a  wrong  one,  the  general  doctrine  which  I  am  now  main- 
taining would  not  be  thereby  in  the  slightest  degree  invali- 
dated. 

How  far  it  would  be  expedient  for  the  government  of  a 
country  to  adopt  measures  with  a  view  to  the  promotion  of 
the  public  morals,  is  a  question  of  some  complexity,  and  one 
which  has  some  connexion  with  that  concerning  the  inter- 
ference of  the  government  with  the  religion  of  the  people. 
I  shall  leave  my  readers  to  decide  it  for  themselves  ;  and  it  is 
not  improbable  that  their  decision  of  it  will  be  very  various 
in  its  application  to  the  different  cases  of  pubhc  morals  as  they 
occur. 

To  the  propriety  of  a  legislative  appropriation  of  the  public 
money  to  the  support  of  common  schools,  in  which  every 


POLITICAL  ECONOMY.  319 

child  in  the  community  may  have  an  opportunity  of  acquiring 
the  elements  of  an  education,  and  be  prepared  by  it  to  become 
a  useful  citizen  when  he  shall  have  arrived  at  manhood,  very 
{ew  educated  men  will  be  any  where  found  to  object.  Some 
people,  however,  have  a  notion  that  the  public  money  granted 
for  purposes  of  education  should  be  appropriated  exclusively 
for  the  support  of  common  schools.  Academies  of  a  higher 
order,  colleges,  and  universities,  they  say  are  places  of 
education  for  the  sons  of  the  rich,  and  ought  to  be  left  to  be  sup- 
ported by  the  rich.  Fortunately,  however,  the  interests  of  the 
rich  and  of  the  poor  are  not  by  any  means  so  often  in  opposition 
to  each  other  as  many  persons  are  apt  to  suppose ;  and  they 
are  certainly  not  in  opposition  to  each  other  in  the  instances 
just  mentioned.  While  the  common  schools  are,  on  the  one 
hand,  open  to  the  rich  and  poor  alike ;  the  colleges  and  univer- 
sities, on  the  other,  are  institutions  where,  in  consequence  of 
the  endowments  bestowed  upon  them,  by  wealthy  individuals 
or  by  the  state,  the  children  of  persons  in  moderate  pecuniary 
circumstances,  as  well  as  of  the  rich,  can  receive  an  educa- 
tion of  a  higher  order.  If  the  children  of  persons  in  still  more 
moderate  circumstances  are  practically  excluded  from  the 
benefits  of  a  college  or  university  education^  all  that  needs  to 
be  said  is  that  the  remedy  for  the  evil  is  to  be  found,  not  in 
exciting  the  prejudices  of  the  "  democracy"  of  the  country 
against  all  seminaries  of  a  higher  order,  by  promulgating  the 
doctrine  which  I  am  occupied  in  refuting,  but  in  maintaining 
the  expediency  of  a  still  larger  appropriation  of  the  public 
resources  to  such  seminaries,  in  order  to  enable  them  to 
educate  their  pupils  at  a  comparatively  small  expense,  or  even 
to  educate  a  number  of  them  gratuitously,  who  may  be 
selected  for  their  capacity  and  merit  from  among  the  children 
in  the  common  schools,  or  on  any  other  principle  that  may  be 
preferred. 

But  the  poorer  classes,  besides  being  interested  in  the  legis- 
lative bounty  bestowed  on  universities  and  colleges,  as  opening 


320  THE  PRINCIPLES  OF 

to  their  children  in  a  certain  degree  the  doors  of  those  insti- 
tutions, receive  benefit  from  them,  when  fostered  by  the  state, 
in  a  different  mode.  Other  circumstances  being  the  same,  the 
people  generally  will  be  benefited  by  the  existence  in  a  country 
of  a  greater  number  of  highly  educated  men,  than  would  exist 
in  it  were  education  of  the  higher  order  to  be  left  to  be  taken 
care  of  by  the  wealthier  portion  of  the  community  merely.  A 
taste  for  knowledge  will  then  be  more  surely,  as  well  as  more 
rapidly,  diffused  through  the  successive  gradations  of  society, 
down  to  the  most  ignorant ;  and  the  consequence  cannot  fail 
to  be  to  elevate  the  character  of  the  labourer,  and  thereby  to 
augment  his  command  over  the  necessaries  and  luxuries  of 
life.  This  last  effect,  moreover,  will  result  from  the  influence 
of  an  augmented  degree  of  knowledge  in  accelerating  the 
progress  of  improvement  in  the  various  arts. 

Encouragements  administered  in  general  to  science  or  litera- 
ture, and  to  the  fine  arts,  are  evidently  to  be  regarded  as 
proper,  for  the  same  reasons  precisely  as  those  which  have 
been  adduced  to  evince  the  propriety  of  the  legislative  encou- 
ragement of  the  higher  seminaries  of  learning. 

The  useful  arts, — improperly  so  called,  because  the  fine  arts 
are  equally  useful  with  them, — have  been  assumed  above  to 
be  worthy  of  especial  encouragement.  The  reason  why,  the 
reader  can  supply  for  himself. 

All  regulations  which  have  a  tendency  to  prevent  persons, 
not  properly  qualified,  from  belonging  to  any  of  the  learned 
professions,  or  from  engaging  in  any  other  employment,  are 
justifiable,  in  so  far  as  they  are  justifiable,  on  the  principles 
on  which  the  interference  of  individuals,  or  of  governments,  has 
been  justified  in  the  cases  already  considered  in  the  present 
chapter, — the  principles  that  can  alone  justify  the  interfering 
in  any  case  whatever  with  the  liberty  of  our  fellow-men  to 
act  according  to  their  pleasure, — to  wit,  that  it  is  the  duty  of 
the  lawgiver  to  protect  society  from  the  injurious  action  of  any 
of  its  members,  and  likewise  to  promote  the  general  welfare 


POLITICAL  ECONOMY.  321 

as  far  as  lies  in  its  power.  The  regulations  in  question  pro- 
ceed on  the  supposition  that  a  considerable  portion  of  the 
community  are  not  sufficiently  well  informed  to  be  able  to 
form  a  proper  judgment  concerning  the  qualifications  of  the 
professional  man,  or  other  labourer,  for  whose  services  he 
may  be  disposed  to  apply.  Under  these  circumstances,  the 
government,  or  persons  deriving  authority  for  the  purpose 
from  the  government,  undertake  to  judge  for  them.  It 
is  evident  that  the  expediency  of  all  measures  of  the  kind 
will  be  lessened,  according  as  knowledge  is  more  generally 
diffused ;  and  that  first  one,  and  then  another  of  them,  can  be 
removed  or  repealed  with  advantage  to  the  public. 

There  is  another  class  of  interferences  with  man's  liberty 
of  action,  respecting  which  little  needs  here  be  said.  I  refer 
to  the  subjecting  of  certain  articles  of  merchandise,  before 
they  are  permitted  to  be  sold,  to  the  inspection  of  officers 
appointed  for  the  purpose  of  testing  their  quality ;  and  to  the 
prohibition,  often  existing,  of  buying  or  selling  certain  articles, 
excepting  at  j)articular  times  and  places.  Such  interferences 
as  these  are  often  exceedingly  annoying  to  both  buyer  and 
seller,  and  unaccompanied  by  any  compensating  advantages. 
They  are,  indeed,  at  times  so  very  absurd  as  to  serve  no  other 
purpose  than  to  furnish  the  occasion  of  creating  a  number  of 
offices,  to  be  filled  by  partisans  or  creatures  of  the  administra- 
tion of  the  government  for  the  time  being. 


322  THB  PRrNCIFLES  OP 


CHAPTER  V. 

EFFECTS  OF  A  DIVISIOIV   OF   THE    PROPERTY    OF    THE    RICH    AMONG 
THE    POOR  ;    AND    OF    INTERFERENCES    IN    GENERAL  WITH    THE 

PROPERTY    OF    THE    RICH    FOR     THE    BENEFIT   OF   THE   POOR 

OF  trades'  UNIONS. 

Having,  in  the  preceding  chapter,  touched  upon  one  of  the 
cases  in  which  the  interests  of  the  rich  and  the  poor  have 
been,  although  wrongfully,  supposed  to  clash,  it  will  be  in 
order  for  me  to  proceed  with  the  discussion  of  the  various 
modes  of  improving  the  condition  of  the  latter  of  these  classes 
at  the  expense  of  the  former.  The  converse  of  this,  how  the 
rich  may  profit  at  the  expense  of  the  poor,  I  shall  not  be 
expected  to  treat  as  a  separate  question.  At  any  rate,  after 
the  argument  in  behalf  of  the  poor  shall  have  been  exhibited 
and  animadverted  upon,  the  reader  will  be  able  to  supply  for 
himself,  if  he  chooses,  that  in  behalf  of  the  rich. 

Let  us  begin  with  the  case  in  which,  of  all  others,  the  poor 
would  be  apparently  most  benefited.  Let  an  equal  division 
be  made  of  the  national  wealth.  What  will  be  the  conse- 
quences to  ensue  1 

In  xhe  first  place,  a  blow  will  have  been  struck  at  the  rights 
of  property.  What  has  once  occurred  may  occur  again.  In 
the  hope,  and  even  expectation,  of  its  doing  so,  the  industrious 
will  relax  his  industry,  and  the  indolent  will  become  more 
indolent  still.  Production  will  therefore  be  lessened.  A 
greater  proportion,  too,  of  what  is  in  fact  produced  will  be 
consumed  unproductively  ;  for  when  a  man's  savings  may  be 
taken  from  him,  the  motive  for  saving  any  part  of  his  income 
cannot  be  as  great  as  it  would  be  under  a  system  of  entire 
security  to  property ;  and  capital  will,  of  course,  not  be  in 


POLITICAL  ECONOMY.  323 

reality  accumulated  as  rapidly  as  before.  To  say,  however, 
only  this,  is  doing  injustice  to  the  importance  of  ever  preserv- 
ing the  rights  of  property  inviolate.  The  more  my  readers 
will  ponder  upon  the  effects  which  must  necessarily  result 
from  every  violation  of  those  rights  by  the  hand  of  power, 
whether  that  power  reside  in  a  monarch  or  a  mob,  the  more 
extensive  and  disastrous,  in  my  opinion,  will  the  effects 
described  appear  to  them  to  be.  Now  if  the  accumula- 
tion of  capital  proceed  at  a  much  diminished  rate,  two  con- 
sequences, on  the  principles  previously  established  in  the 
present  work,  must  ensue ;  the  population  of  the  country  will 
not  by  any  means  increase  as  fast  as  it  did  ;  and  the  wages 
of  labour  will  be  considerably  lowered.  Again,  a  community, 
where  such  a  measure  could  by  possibility  be  adopted  as 
that  whose  effects  are  now  the  subject  of  examination,  must 
be  an  immoral,  irreligious,  and  degraded  community ;  one 
consequently,  also  on  the  principles  previously  explained, 
which,  whatever  temporary  advantages  it  may  succeed  in 
obtaining  by  dishonest  means,  will  unavoidably  have  its  com- 
mand over  the  necessaries  and  luxuries  of  life  ultimately 
reduced  to  a  comparatively  small  range  of  enjoyment. 

But  this,  although  sufficient,  and  more  than  sufficient  for 
our  purpose,  is  not  all.  For  secondly,  where  all  the  members 
of  a  community  are  comparatively  poor,  as  they  would  be 
notwithstanding  the  division  among  them  of  the  property  of 
the  rich,  it  would  be  much  more  difficult  than  at  present  to 
bring  together,  and  wield  efficiently,  a  large  amount  of  capital. 
The  divisions  of  labour  could  not,  in  consequence,  take  place 
to  the  extent  required  by  the  existing  state  of  the  arts ;  and 
production  would,  on  this  account,  take  place  more  rudely, 
and  less  abundantly. 

Thirdly,  on  the  supposition  which  has  been  made,  of  the 
division  of  the  property  of  the  rich  among  the  poor,  every 
man  would  be,  nevertheless,  so  poor  that  he  would  have  to  be 
engaged  in   some  bodily  or  manual   occupation;  the  few 


824  THE  PRINCIPLES  OF 

instances  only  excepted  where  extraordinary  natural  or 
acquired  capabilities  qualified  their  possessor,  in  the  opinion 
of  his  fellow-citizens,  for  the  superintendence  or  management 
of  combined  capital.  The  great  body  of  the  people  would, 
it  is  obvious,  be  placed  in  the  most  unpropitious  circumstances 
for  the  development  of  the  powers  of  human  invention.  So 
far,  it  seems  to  me,  from  improvements  of  any  moment  being 
then  introduced  in  the  arts,  thus  augmenting  the  productive 
powers  of  man,  the  arts  would  gradually  deteriorate,  and 
many  of  them,  as  happened  in  earlier  times,  would  eventually 
pass  away  and  be  forgotten. 

And  lastly,  even  though  the  progress  of  improvement  and 
and  the  accumulation  of  capital  were  to  go  on  as  before,  the 
command  of  the  several  members  of  the  community  over  the 
necessaries  and  luxuries  of  hfe  would  gradually  become  con- 
tracted. The  desires  and  habits  of  the  people  remaining  the 
same,  the  possession  by  them  of  larger  means  of  expenditure 
would  have  the  effect  of  giving  a  corresponding  stimulus  to 
population;  and  eventually,  the  population  would  be  aug- 
mented, at  the  very  time  when,  on  account  of  the  diminishing 
return^  from  the  land,  the  rate  of  production  would  be  dimi- 
nished, so  as  to  reduce  the  whole  community  to  a  state  of 
poverty.  But  because  the  temporary  enjoyment  of  a  greater 
amount  of  necessaries  and  luxuries,  than  the  mass  of  the 
community  had  been  previously  accustomed  to,  would  have  a 
tendency  to  improve  their  habits,  and  enlarge  their  desires  for 
enjoyment,  some  modification,  it  is  true,  may  be  proper  of  the 
conclusion  just  arrived  at.  Not,  however,  to  any  great 
extent ;  as  the  reader  cannot  fail  to  perceive  on  a  moment's 
reflection. 

Now  putting  together  all  the  considerations  which  have 
been  stated,  to  exhibit  the  inexpediency  of  a  division  of  the 
property  of  the  rich  among  the  poor,  it  is  impossible  not  to 
conclude  that,  while  the  temporary  advantages,  to  be  derived 
by  the  latter  from  so  violent  and  so  dishonest  a  measure, 


POLITICAL  ECONOMY.  325 

would  be  much  less  in  amount  than  might  on  a  superficial 
view  be  expected,  the  whole  community  would  before  long  be 
reduced  to  a  state  of  almost  irretrievable  wretchedness  and 
barbarism. 

The  inexpediency  of  dictating  to  an  individual  how  much 
he  shall  consume  of  his  income  on  his  immediate  gratification, 
and  how  much  he  shall  save  or  consume  productively  as 
capital,  has  been  shewn  in  a  foregoing  chapter.  And  every 
other  contrivance  or  scheme  which  can  be  imagined  for 
taking  in  any  degree  from  the  enjoyments  or  property  of  the 
rich  without  their  consent,  in  order  to  give  to  the  poorer 
classes  of  labourers,  is  liable  to  precisely  the  same  objections 
as  is  the  proposition  to  make  an  equal  division  of  the  wealth 
of  a  nation  among  all  the  individuals  composing  it.  If  it  shall 
be  said  that,  where  a  little  only  is  taken  to  be  disposed  of  in 
the  manner  suggested,  the  consequent  evils  will  be  compara- 
tively small,  I  would  remark  that  the  temporary  advantages, 
bestowed  upon  the  mass  of  the  community,  will  likewise  be 
proportionally  diminished ;  and  the  argument  above  presented 
will  retain  its  full  force. 

At  the  present  period,  in  our  own  country  as  well  as  else- 
where, there  is  no  expedient  oftener  tried  to  effect  a  rise  of 
wages  than  combinations  among  the  labourers  engaged  in  a 
particular  occupation,  or  among  the  labourers  engaged  in 
more  occupations  than  one,  to  compel  their  employers  to  pay 
them  at  a  higher  rate  by  means  of  a  strike,  that  is  of  a  refusal 
on  their  part  to  work  until  their  desires  are  complied  with. 
These  trades'  unions,  besides,  seldom  stop  at  this  point.  Not 
content  with  a  voluntary  enlistment  of  the  workmen  in  their 
number,  they  attempt  to  act,  and  often  succeed  in  acting 
compulsorily  upon  those  who  are  disinclined  to  unite  with  them 
in  their  measures.  While  they  contribute,  in  a  certain  degree, 
to  the  support  of  a  workman  and  his  family  who  have  nothing 
laid  up  in  store  against  the  emergency  of  being  without 
occupation,  they  cease  to  have  any  intercourse  whatever  with 

43 


326  THE  PRINCIPLES  OF 

him,  or  persecute  him  in  a  still  harsher  manner,  if,  rather 
than  comply  with  their  wishes  or  commands,  he  prefers  to 
work  at  the  wages  which  the  employers  or  capitalists  are 
willing  to  pay. 

No  one  will  deny  that  the  existence  in  a  community  of  all 
combinations  of  the  nature  of  the  trades'  unions  is  an  evil,  of 
no  little  magnitude,  not  only  on  account  of  the  inconveniences 
to  which  the  capitalists  and  labourers  are  subjected  on  the 
occasion  of  every  strike,  but  also  on  account  of  those  experi- 
enced by  the  consumers  of  the  articles  produced,  in  conse- 
quence of  the  necessary  interruption,  resulting  from  a  strike, 
of  the  ordinary  rate  of  supply.  Perhaps  a  greater  evil  still  is 
their  tendency  to  propagate  the  notion  that,  so  far  from  the 
the  natural  course  of  things  being  on  the  whole,  as  political 
economists  maintain  it  to  be,  the  most  conducive  to  the  inter- 
ests of  both  rich  and  poor,  a  constant  struggle  of  the  poor 
against  the  rich  is  imperatively  required  to  prevent  the  former 
from  being  reduced  by  the  latter  to  the  necessity  of  content- 
ing themselves  with  a  bare  subsistence  merely.  To  justify 
the  infliction  upon  society  of  the  evils  which  have  been  men- 
tioned, I  need  scarcely  say  that  some  great  good  should 
be  unequivocally  shewn  to  be  likely  to  result.  A  per- 
manent rise  to  a  certain  extent  in  the  ordinary  rates 
of  wages  would  be  such  a  good ;  since,  as  has  been 
before  stated,  the  prosperity  of  a  people  depends  more  upon 
the  circumstance  of  wages  being  high  than  upon  any 
other  cause.  I  shall,  however,  proceed  to  shew  that  no 
permanent  augmentation  of  the  ordinary  rates  of  wages  can 
possibly  be  accomphshed  through  the  instrumentality  of  trades' 
unions ;  and  that  all  such  institutions  are  productive  only  of 
unmixed  evil.  My  argument  will  probably  not  reach  the 
parlies  who  are  more  immediately  engaged  in  them,  and  who 
are  the  principal  sufferers  of  the  evils  they  inflict;  but  I  may 
assume  it  to  be  not  altogether  improbable  that  it  may  meet 
the  eye  of  some  who  have  hastily  given  encouragement  to 


POLITICAL    ECONOMY.  327 

them,  supposing  themselves,  when  so  doing,  to  be  contributing 
to  "  the  greatest  good  of  the  greatest  number,"  and  may 
induce  in  them  a  conviction  of  their  having  been  in  errour. 


CHAPTER  VI. 

THE  SUBJECT  OF  TRADES*  UMO\S  CONTINUED. 

I  HAVE  said  that  I  w^ould  proceed  to  shevir  that  no  advan- 
tage can  be  derived,  by  the  receivers  of  wages,  from  the 
trades'  unions.  But  this  I  have,  in  fact,  already  done,  when 
treating  generally  of  the  effects  resulting  from  a  compulsory 
transfer  of  a  portion  of  the  property  of  the  rich  to  the  poor. 
It  matters  not  whether  such  a  transfer  be  accomplished  by 
taking  from  the  rich  in  one  way  or  in  another,  excepting  only 
that,  in  as  much  as  there  is  no  dishonest  taking  where  higher 
wages  are  exacted,  the  degradation  of  character  ensuing 
cannot  be  at  all  as  marked  as  it  must  be  in  the  case  of  a  more 
palpable  violation  of  the  rights  of  property ;  and  consequently, 
wages  will  not  be  lowered  to  such  an  extent  as  it  was  before 
shewn  they  would  be. 

The  subject  is,  however,  one  of  so  much  practical  impor- 
tance, at  the  period  and  in  the  country  in  which  we  live, 
that  it  will  not  be  superfluous  to  state  the  argument  in  ques- 
tion in  direct  reference  to  the  particular  case  now  under 
consideration. 

First,  let  a  certain  class  of  workmen,  in  some  one  place, 
succeed  in  getting  their  wages  raised,  by  means  of  combining 
together  in  the  manner  which  has  been  described.  For 
example,  let  the  class  who  have  thus  attained  their  object  be 


328  THE    PRINCIPLES    OP 

the  journeymen  carpenters,  and  the  place  where  they  have 
attained  it  the  city  of  Philadelphia.  It  is  obvious  that  this 
state  of  things  can  only  be  of  a  very  temporary  duration. 
A  motive  will  now  exist  for  the  removal  to  this  city  of  work- 
men of  the  kind  specified  from  other,  and  especially  from 
neighbouring  places ;  and  an  influx  of  thehi  into  the  city  will 
actually  occur,  with  more  or  less  rapidity,  according  to  the 
degree  in  which  wages  have  risen.  The  rate  of  wages  here 
will  fall,  but  will  rise  elsewhere,  until  the  rate  in  one  place 
will  again  bear  to  the  rate  in  every  other  the  same  proportion 
which  it  had  before ;  when  wages  throughout  the  country 
will  be  evidently  only  somewhat  higher  than  they  formerly 
were. 

In  the  above  reasoning,  no  account  has  been  taken  of  the 
efforts  of  a  trades'  union  to  prevent  any  of  the  trade  from 
working  at  lower  wages  than  what  they  insist  upon  receiving. 
Such  efforts  will  not  be  likely  to  produce  an  effect  by  any 
means  as  great  upon  strangers  coming  from  abroad,  as  upon 
those  workmen  who  have  been  in  the  habit  of  association  and 
companionship  withthemembersof  the  union;  and  according 
to  the  extent  in  which  the  effect  is  actually  produced,  will  the 
expenditure  incurred  by  the  members  of  the  union,  in  contri- 
buting to  the  support  of  every  workman  who  is  thrown  out  of 
employment  in  consequence  of  their  acts,  be  augmented, 
and  become  the  sooner  an  obstacle  to  the  successful  prosecu- 
tion of  the  warfare  undertaken  by  them  against  their  em- 
ployers. 

Now  suppose  the  parties  in  question  to  succeed,  by  help 
of  the  various  modes  of  annoyance  or  persecution  in  their 
power,  in  excluding  all  competition  with  them  for  work  from 
other  parts  of  the  country ;  or,  what  amounts  to  the  same 
thing  in  reference  to  our  present  topic,  let  the  journeymen 
carpenters,  every  where  else  in  the  country  as  well  as  in 
Philadelphia,  strike  for  higher  wages,  and  thus  actually  obtain 
them.    The  series  of  changes  will  not  yet  have  been  traced  to 


POLITICAL    ECONOJir.  329 

its  ultimate  term.  The  carpenters  will,  before  long,  be 
deprived  of  their  advantages,  if  the  other  trades  do  not  like- 
wise follow  in  their  footsteps,  and  strike  for  wages.  So  long 
as  they  are  receiving  more  than  the  ordinary  rate  of  wages, 
labour  will  be  transferred  from  other  occupations  to  theirs, 
and  the  rising  generation  will  prefer  their  occupation  to  every 
other.  But  here  again,  let  the  trades'  unions  of  every  descrip- 
tion throughout  the  whole  country  follow  their  example,  and 
let  there  be  therefore  a  general  rise  in  the  wages  of  labour. 
Such  a  rise  of  wages,  the  productive  power  of  the  country 
remaining  unaltered,  will  imply,  as  my  readers  will  recollect, 
a  corresponding  fall  of  profits ;  and  as  the  amount  of  savings 
made  from  wages  is  in  general  less  than  from  an  equal  portion 
of  profits,  and  the  amount  saved  besides,  when  other  circum- 
stances are  the  same,  being  always  greater  or  less  according 
as  the  rate  of  profits  is  greater  or  less,  the  conclusion  may  be 
drawn  that  the  accumulation  of  capital  will  be  very  much 
retarded  by  the  successful  operation  of  the  trades'  unions. 
And  my  readers  need  not  be  again  told  that  every  retardation 
of  the  rate  in  which  capital  accumulates  will  be  accompanied 
by  the  two  effects  of  a  less  rapid  increase  of  population,  and 
of  a  diminished  rate  of  wages.  Moreover,  but  for  the  enjoy- 
ment/or  a  time  by  the  labouring  classes  of  a  higher  rate  of 
wages,  which  will  render  them  less  disposed  to  content  them- 
selves with  the  wages  they  were  before  accustomed  to,  the 
diminution  of  wages  will  proceed  until  they  are  reduced  once 
more  to  their  former  rate.  The  tendency  of  them,  however, 
to  be  for  this  reason  at  a  somewhat  higher  rate  than  formerly 
would  in  all  probability  be  more  than  counteracted  by  the  sum 
total  of  production,  when  compared  with  the  augmented 
population,  having,  from  the  necessity  of  applying  capital  and 
labour  to  the  land  under  more  disadvantageous  circumstances 
than  before,  become  diminished ;  a  condition  of  things,  it  will 
be  recollected,  implying  a  rise  of  rents,  and  a  fall  of  profits 
and  wages. 


330  THE  PRINCIPLES    OP 

Although  too,  as  I  have  said,  the  action  of  the  trades' 
unions  can  hardly  be  stigmatized  as  of  a  dishonest  character, 
since  what  they  propose  to  take  from  their  employers,  in 
addition  to  the  rate  of  wages  which  would  be  determined  on 
the  principles  of  free  competition  between  the  employers  and 
the  employed,  is  no  doubt  regarded  by  themselves  as  a  remu- 
neration for  their  labour  to  which  they  are  justly  entitled, — 
such  action  is,  nevertheless,  a  violation  to  a  certain  extent  of 
the  rights  of  property.  And  if  these  rights  may  be  once 
violated  by  the  trades'  unions,  they  may  be  again  and  again 
violated  by  them ;  and  the  apprehension  of  this  taking  place 
would  constitute  a  check  to  the  accumulation  of  capital  with 
its  usual  rapidity ;  inducing,  in  consequence,  a  fall  of  wages 
below  the  usual  rate. 

But  here  it  may  be  said  that,  provided  the  rate  of  wages 
could  be  raised  by  the  compulsory  action  of  the  trades'  unions 
upon  both  the  capitalists  and  the  labourers  whom  they  employ, 
the  present  generation  of  men,  and  especially  the  members  of 
the  unions,  need  not  concern  themselves  with  what  is  to 
happen  when  they  shall  have  passed  from  the  stage  of  life. 
The  good  sense,  the  patriotism,  and  the  enlarged  philanthropy 
of  the  reader,  will,  however,  I  trust,  repel  the  proposition  thus 
hypothetically  stated.  We  are  all  of  us  bound  in  duty  to  act, 
during  the  period  of  our  abode  on  this  earth,  not  with  refer- 
ence to  ourselves  and  our  contemporaries  only,  but  also  in  a 
certain  decree  in  reference  to  those  who  are  to  come  after  us. 
But  even  if  this  were  not  the  case,  the  compulsory  rise  of 
wages  in  question  can  be  shewn  to  be  productive  of  little  or 
no  advantage  to  the  labourer. 

From  the  very  moment  a  rise  of  wages  takes  place,  the  rate 
of  profits  will  be  reduced,  and  capital  will  accumulate  less 
rapidly,  and  wages  therefore  commence  falling. 

Again,  until  the  increased  demand  which  the  higher  pecu- 
niary wdigcs  of  the  labourers  enable  them  to  make  for  certain 
commodities    shall   have    induced    the   transfers  of  capital 


POLITICAL  ECONOMY.  331 

requisite  for  supplying  that  demand,  their  real  wages  cannot 
be  much  greater  than  they  were  before.  The  same  quantity 
of  those  commodities  will  have  to  be  distributed  among 
the  same  number  of  persons,  and  distributed  among  them 
in  nearly  the  same  proportion. 

For  both  the  reasons  which  have  just  been  stated,  it  will 
happen,  on  a  sudden  rise  of  the  wages  of  the  labourers,  that 
they  will,  on  the  one  hand,  find  it  more  difficult  to  get 
employment,  and,  on  the  other,  be  obliged  to  purchase  the 
necessaries  and  luxuries  consumed  by  them  at  a  higher  price ; 
especially  the  necessaries,  for  which  a  more  extensive  demand 
is  made  by  the  classes  receiving  wages  than  is  made  by  them 
for  luxuries.  So  that  even  at  first,  the  advantages  derived  by 
the  labourers  from  a  compulsory  rise  of  their  pecuniary 
wages,  produced  by  means  of  trades'  unions, — and  the  same 
may  be  said  when  the  rise  is  produced  in  any  other  manner, 
— are  far  less  than  they  are  commonly  led  to  anticipate. 

If  now  from  these  advantages,  whatever  they  may  be,  we 
subtract  the  expenditure  necessarily  incurred  by  the  members 
of  the  unions,  and  likewise  duly  estimate  the  other  inconve- 
niences and  even  distresses  suffered  from  time  to  time  by  them 
and  their  families,  in  consequence  of  their  system  of  com- 
bining against  their  employers, — even  setting  aside  ichollij 
the  permanently  injurious  effects  to  result, — I  think  tjiat  an 
unprejudiced  person  can  scai'cely  avoid  concluding  against 
every  system  of  the  kind  ;  not  only  in  respect  to  the  interests 
of  the  community  regarded  as  a  whole,  but  also  in  respect 
to  those  of  the  very  parties  to  benefit  whom  is  the  object 
proposed. 


332  THE  PRINCIPLES  OF 


CHAPTER  VII. 

EFFECTS    OF    A  LEGISLATIVE    REGULATION  OF  THE    HOURS    OF 
LABOUR. 

An  attempt  has  sometimes  been  made  to  improve  the 
condition  of  the  labourers  by  diminishing  the  number  of  hours 
in  the  day  during  which  they  are  required  to  work.  The 
reader  will  easily  perceive  that  this  is  equivalent  to  an  attempt 
to  raise  the  wages  of  labour.  Whether  an  individual  receive 
the  same  compensation  for  working  ten  which  he  received 
previously  for  working  twelve  hours  of  the  twenty-four,  or 
whether,  the  time  of  his  work  remaining  unaltered,  his  wages 
are  augmented  in  the  proportion  of  five  to  six,  must  be 
a  matter  of  indifference  to  the  capitalist  who  employs  him. 
The  motives  most  commonly  urged  for  a  diminution  of  the 
hours  of  labour  are  these  two ;  first,  the  physical  deteriora- 
tion of  the  individual  from  being  overworked  ;  and  secondly, 
his  want  of  leisure,  from  the  same  cause,  for  improving  his 
intellectual  and  moral  nature.  I  will  make  a  word  or  two 
of  remark  on  each  of  these  heads. 

It  is  not  owing  alone  to  too  much  of  his  time  being  devoted 
to  labour  that  the  physical  or  bodily  constitution  of  the  work- 
man is  affected  injuriously.  The  medical  statistics  of  different 
countries  teach  us  that  the  mortality,  out  of  a  given  number 
of  persons,  is  always  less  among  the  comparatively  rich  than 
among  the  comparatively  poor;  and  that,  from  the  upper 
extremity  of  this  scale  to  the  lower,  a  progressively  aug- 
menting physical  deterioration  is  thus  indicated.  At  least, 
the  only  exception  to  this  general  remark  is  presented  by 
the  very  rich,  who  live  in  idleness,  and  who  are  in  conse- 
quence apt  to  seek  a  refuge  from  the  miseries  of  the  ennui 
which  it  generates  in  the  pleasures  and  the  vices  of  dissipa- 


POLITICAL  ECONOMY.  333 

tion.  In  proportion,  then,  a-s  the  wages  of  labour  are  low- 
ered, will  the  physical  condition  of  a  people  be  deteriorated. 
Now  the  wages  of  the  labourer  are  lowered, — his  real  wages 
I,  of  course,  mean, — when  his  command  over  the  necessa- 
ries and  luxuries  of  life  is  diminished ;  and  this  again  can 
take  place,  either  by  his  being  unable  to  obtain,  in  exchange 
for  a  given  portion  of  his  labour,  as  great  an  amount  of 
those  necessaries  and  luxuries  as  before,  or  by  his  being 
obliged  to  labour  during  a  longer  time  that  he  may  procure 
the  same  amount  of  them.  As  great  a  gratification  surely 
may  be  enjoyed  by  being  relieved  from  oppressive  labour,  as 
can  be  furnished  by  the  commodities  produced  by  it.  The 
tendency  accordingly,  in  the  progress  of  society,  will  be  for 
the  daily  wages  of  the  labourer  to  be  augmented,  while  the 
hours  during  which  he  works  in  the  day  are  less  numerous 
than  they  were ;  and,  on  the  contrary,  diminished,  while  the 
hours  of  work  are  greater  in  number  than  they  were  before. 
And  the  analogy  having  been  pointed  out  between  the  two 
cases  I  have  been  comparing  together,  it  will  follow  that 
every  argument  which  will  apply  to  evince  the  propriety  of 
diminishing  the  hours  of  labour,  will  apply  with  equal  pro- 
priety, so  far  as  the  physical  deterioration  of  a  people  ia 
concerned,  to  evince  the  propriety  of  augmenting  the  rate  of 
wages  generally. 

Lei  us,  in  the  next  place,  trace  the  consequences  which 
will  result  from  abbreviating  the  hours  of  labour,  without  at 
the  same  time  making  any  alteration  in  the  amount  of  daily 
wages  to  he  paid.  This,  as  has  been  explained,  being  in 
fact  an  augmented  rate  of  wages,  must  be  accompanied  by 
a  fall  in  that  of  profits.  Population,  on  account  of  the  first 
of  these  effects,  will  advance  with  unusual  rapidity ;  while 
capital,  on  account  of  the  other,  will  be  accumulated  more 
slowly.  For  both  these  reasons,  my  readers  will  now  under- 
stand, without  any  explanation  on  my  part,  that  wages  will 

43 


334  THE    PRINCIPLES    OP 

gradually  fall  to  nearly  their  former  rate, — so  nearly  to  their 
former  rate,  as  to  render  the  additional  wages  received  by 
the  labourers  no  sufficient  compensation  to  society  for  the 
violation  of  the  rights  of  property  implied  in  every  compulsory 
raising  of  the  rate  of  v^^ages.  Or,  in  other  words,  since  every 
violation  of  those  rights  has  a  tendency,  by  checking  the 
accumulation  of  capital,  to  cause  wages  to  fall,  more  will, 
in  consequence,  be  eventually  lost  to  the  labourers  than  the 
little  advantage  which  they  may  derive  in  the  manner  and 
for  the  reason  above  stated. 

In  the  remarks  made  by  me  in  this  and  the  tvt^o  preceding 
chapters,  my  language  may,  perhaps,  have  been  somewhat 
too  unqualified  when  I  spoke  of  every  taking  from  the  rich 
for  the  benefit  of  the  poor  being  a  violation  of  the  rights  of 
property.  There  can  be  no  doubt  of  the  correctness  of  this 
assertion  where  the  poor  are  the  only  parties  to  be  benefited. 
Where,  however,  any  transfer  of  property,  of  the  kind  men- 
tioned, can  be  shewn  to  be  ultimately  advantageous  to  the 
ri-ch  themselves,  to  an  extent  more  than  equivalent  to  the 
loss  incurred  by  them  in  the  first  instance,  it  may  become 
the  duty  of  the  government  of  a  country  to  cause  it  to  be 
accomplished.  It  is,  indeed,  on  this  ground  alone  that  the 
interference  of  the  government  with  the  property  of  individuals 
of  whatever  class,  by  taxation,  or  in  any  other  way,  can  be  at 
all  justified. 

We  have  here  a  test  of  the  expediency  of  taking  from  the 
capitalists  and  giving  to  the  labourers  employed  by  them, 
which,  however  it  may  fail  in  the  case  of  a  full-grown  man, 
may  possibly  yield  us  a  different  result  if  applied  to  the  chil- 
dren who  find  employment  in  factories  and  elsewhere.  By 
restricting  in  their  case  the  hours  of  labour,  time  would  be 
found  for  educating  them;  and  when  those  children  shall 
have  arrived  at  manhood,  the  condition  of  the  labouring 
community  will  not  fail  on  this  account  to  be  essentially 


POLITICAL    ECONOMY.  ~  335 

changed  for  the  better  in  a  moral  point  of  view.  It  is  scarcely 
necessary  to  say  how  desirable  such  a  result  would  be  in 
reference  to  the  best  interests  of  a  country,  and  in  reference 
too  to  the  interests  properly  understood  of  the  richer  as  well 
as  of  the  poorer  classes.  Any  attempt  to  improve  the  condition 
of  the  uneducated  adult  labourer,  by  a  positive  interference 
on  the  part  of  the  government  to  relieve  him  from  some  of 
the  hours  of  labour,  would  in  my  opinion  be  productive  of 
very  little  corresponding  benefit.  It  is  not  improbable 
that  the  leisure  time  provided  for  him,  and  to  which 
he  has  been  hitherto  unaccustomed,  ma.y  contribute  to 
deteriorate  instead  of  improving  his  condition,  by  being  spent 
as  often  in  dissipation  and  vice,  as  in  the  business  of  acquiring 
knowledge  or  exercising  his  mental  faculties. 


CHAPTER  VIII. 

THE  SYSTEM  OP  PRISON  LABOUR  CONSIDERED. 

Some  two  or  three  years  since,  a  considerable  clamour  was 
raised  by  the  mechanics  in  the  state,  and  especially  in  the  city 
of  New  York,  on  account  of  the  system  adopted  of  setting  the 
state-prisoners  at  Sing  Sing  and  Auburn  to  work,  and 
then  disposing  of  the  articles  produced  by  them,  with  a  view 
to  provide  either  wholly  or  partially  for  the  expense  of  sup- 
porting and  guarding  them.  They  (the  mechanics)  complained 
that  an  indignity  was  put  upon  them,  and  their  rank  in  the 
community  lowered,  by  the  prisoners  being  employed  exclu- 


336  THE  PRINCIPLES  OF 

sively  in  mechanical  occupations ;  and  that  it  was  not  only 
injurious  to  their  interests,  but  likewise  unjust,  to  subject  their 
honest  industry  to  a  competition  in  the  market  with  that  of 
persons  convicted  of  crime. 

To  inquire  into  the  validity  of  the  former  of  these  com- 
plaints does  not  properly  lie  within  the  scope  of  our  science  ; 
and  I  shall,  therefore,  content  myself  here  with  an  acknow- 
ledgment of  my  inability  to  perceive  any  ground  for  it  in  the 
circumstance  of  the  convict  being  employed  in  mechanical 
and  not  in  other  occupations,  or,  in  other  words,  being 
employed  in  the  production  of  material  and  not  of  immaterial 
wealth.  Such  must  of  necessity  be  for  the  most  part  the 
case,  if  they  are  to  be  employed  at  all  in  the  business  of  pro- 
duction. Moreover,  it  should  also  be  recollected  that  the  em- 
ployment in  question  is  not  assigned  as  a  degrading  punishment. 
The  true  objects  of  it, — whether  in  this  way  best  attained  or 
not,  is  here  a  matter  of  no  moment, — besides  that  of  relieving 
the  community  from  a  certain  amount  of  taxation,  which 
would  otherwise  be  necessary  for  meeting  the  expenditure 
required  for  the  support  of  the  prisons,  is  the  reform  of  the 
criminal,  by  the  useful  occupation  of  the  time  at  his  disposal, 
and  the  furnishing  him  at  the  period  of  his  discharge,  where 
he  did  not  already  possess  it,  with  an  honest  and  therefore 
honourable  means  of  gaining  a  livelihood. 

Whether  the  mechanics,  because  of  the  competition  of  con- 
vict labour,  will  make  less  profits  than  they  would  otherwise 
do,  is  a  question  which  I  shall  first  examine  on  the  supposition 
of  the  products  of  the  labour  of  the  convicts  being  disposed  of 
at  their  market  price,  that  is,  at  a  price  neither  cheaper  nor 
dearer  than  that  at  which  the  like  commodities  are  ordinarily 
sold.  Here,  it  is  plain,  the  competition  will  be  precisely  of  the 
same  nature  with  what  would  ensue  upon  the  investment  of 
an  additional  amount  of  the  labour  and  capital  of  any  portion 
of  the   community  in  the  business  or  employment  of  the 


POLITICAL    ECONOMr.  337 

mechanics  concerned.  The  prices  of  the  commodities  pro- 
duced will  fall,  and  the  profits  of  the  producers  be  reduced 
below  their  usual  rate.  Capital  will  then,  of  course,  be  trans- 
ferred to  other  employments,  until  prices  and  profits  be 
restored  to  their  former  level.  But  when  capital  is  transferred 
from  any  one  employment  to  another,  the  fund  from  which 
wages  are  paid  in  the  former  will  be  necessarily  diminished ; 
and  a  transfer  of  labour  must  therefore  also  take  place. 
During  these  transfers,  much  inconvenience  will  be  suffered  by 
both  capitalists  and  labourers.  As  soon,  however,  as  they 
shall  have  been  completed,  the  ordinary  rates  of  profits  and 
wages  will  be  received  in  every  branch  of  industry  alike. 
And  those  mechanics,  be  they  masters  or  journeymen,  who 
continue  to  be  engaged  in  the  branch  of  industry  interfered 
with  by  the  system  of  convict  labour,  being  as  well  off  as  the 
mechanics  generally, — nothing  besides  having  occurred  to 
diminish  in  any  degree  the  whole  amount  of  production, — will 
have  no  reason  for  just  complaint. 

Most  of  the  complainants  adverted  to  would,  indeed,  readily 
assent  to  the  conclusion  just  arrived  at.  They  do  not  so  much 
object  to  the  competition  of  convict  labour  in  general,  as  to 
all  such  competition  when  the  commodities  produced  are 
thrown  into  the  market  at  a  reduced  price ;  and  it  is  when 
the  regular  mechanic  is  thus  undersold,  that  he  has  loudly 
invoked  the  legislature  of  his  state  to  interfere  in  his  behalf. 
Let  Hs  examine  if,  in  so  acting,  he  has  had  reason  on  his  side, 
or  if  he  has  been  deceived  by  appearances  only. 

Let  us  suppose  the  products  of  convict  labour  to  amount  to 
a  tenth  part  of  those  of  the  regular  mechanic  which  were 
purchased  and  consumed  in  a  given  time,  and  in  a  given 
market ;  and  moreover,  that  the  former  products  are  sold  at 
half  the  price  they  will  usually  command.  It  is  manifest  that 
the  persons  who  have  obtained  the  commodity  in  question  at 
half-price  will  be  disposed  to  consume  it  more  abundantly 
than  if  they  had  had  to  pay  the  full  value  for  it.     The  demand 


338  THE  PRINCIPLES  OF 

for  it  will,  in  other  words,  become  greater  than  it  was  ;  and 
the  consequence  will  be,  that  the  supply  of  it  will  not  be 
required  to  be  diminished  to  the  same  extent  as  it  would  be  if 
the  price  of  what  is  produced  by  the  convicts  were  left  to  be 
determined  by  the  freest  competition  among  all  the  parties. 
This  again  is  tantamount  to  saying  that  a  less  amount  of 
labour  will  have  to  be  transferred,  and  that  the  present  incon- 
venience suffered  by  the  mechanics  will  not  be  as  great. 
When  those  transfers  shall  have  been  effected,  all  classes  of 
the  mechanics  will  receive  the  ordinary  profits  and  wages ; 
and  no  room  will  exist  for  just  complaint  on  the  part  even  of 
those  who  have  been  undergoing  a  temporary  inconvenience. 

There  is  nothing  in  the  above  argument  limiting  its  appli- 
cability to  the  case  when  the  products  of  the  convicts'  labour 
are  sold  at  half  the  usual  market  price.  The  conclusions  just 
arrived  at  will  be  the  same  at  whatever  deduction  from  their 
market  price  those  products  are  sold,  excepting  only  that,  in 
proportion  as  their  price  is  lowered,  the  inconvenience  tem- 
porarily undergone  will  be  lessened ;  and  this  will  be  the  least 
when  their  price  is  lowered  to  the  greatest  possible  extent, 
that  is  when  they  are  given  away  gratuitously. 

It  must  be  apparent  to  the  reader  that  if  the  employments  of 
the  prisoners  be  sufficiently  diversified,  so  that  only  a  few  of 
them  shall  be  set  to  work  to  produce  the  same  kind  of  com- 
modities, the  temporary  inconveniences  of  which  mention  has 
been  made  may  be  rendered  so  very  trifling  as  to  be  wholly 
unworthy  of  notice,  when  compared  to  the  relief  of  the 
public  from  a  certain  amount  of  taxation,  and  the  attainment 
of  the  other  advantages  proposed  by  the  system  of  prison 
labour. 

The  clamour  against  the  system,  however,  occurred  not  on 
its  introduction  as  a  measure  of  state  policy,  when  the  tempo- 
rary inconveniences  were  yet  to  be  suffered  by  the  mechanics 
whose  labour  was  about  to  be  interfered  with  for  the  purpose 
of  promoting  the  general  welfare ;  but  when  all  those  incon- 


POLITICAL  ECONOMY.  339 

veniences  had  passed  av/ay,  and  the  transfers  of  labour  and 
capital  were  accomplished  which  had  been  rendered  desirable. 
It  was  the  abolition  of  what  already  existed  that  was  aimed 
at;  which  abolition  of  it,  so  far  from  being  an  act  of  justice 
to  the  parties  who  were  engaged  in  the  branches  of  industry 
which  had  been  interfered  with, — unless  where  they  were  the 
very  same  individuals  who  had  been  engaged  in  them  at  the 
time  the  system  I  am  speaking  of  was  introduced, — would 
have  increased  their  profits  and  wages  beyond  the  ordinary 
rates,  and  have  given  them  an  undue,  although  temporary 
advantage,  above  their  fellow-citizens. 

What  has  been  delivered,  concerning  the  effects  of  prison 
labour,  will  apply  to  the  labour  of  persons  employed  in  houses 
of  industry,  and  in  the  workhouses  of  the  poor ;  and  will  apply 
with  equal  force. 


CHAPTER  IX. 


OF  ABSENTEEISM. 


A  COUNTRY  has  been  sometimes  thought  to  be  injured  in  an 
extraordinary  degree,  and  the  condition  particularly  of  the 
labouring  classes  depressed,  by  the  absence  abroad  of  a 
considerable  number  of  its  men  of  property  ;  whose  incomes 
in  consequence,  instead  of  being  expended  at  home,  are 
employed  in  the  purchase  of  foreign  necessaries  and  luxuries. 
It  is  in  reference  to  the  absentees  from  Ireland  that  this  opinion 
has  been  oftenest  put  forth ;  and  against  them,  accordingly, 
no  slight  amount  of  odium  has  been  occasionally  excited  in 
the  breasts  of  certain  philanthropic  and  patriotic  individuals  of 


340  THE  PEINCIPLES   OP 

the  British  Empire.  Independently,  however,  of  its  connexion 
with  a  country  which,  for  various  reasons,  is  now  attracting 
so  considerable  a  portion  of  the  attention  of  the  political 
philosopher,  the  subject  is  one  of  sufficient  general  interest 
not  to  be  passed  over,  in  the  present  treatise,  in  silence. 

That  the  emigration  of  capital  is  a  national  loss,  has  been 
sufficiently  established  in  my  second  book.  But  the  question 
under  examination  has  no  relation  to  capital.  When  the 
annual  incomes  of  the  absentees  from  Ireland  are  exported 
or  remitted  to  them,  they  are  in  almost  every  instance  destined 
to  be  consumed  unpi'oductively.  The  true  question  indeed  at 
issue  is,  wdiether  a  certain  unproductive  consumption  shall 
take  place  in  one  country  or  in  another.  Some  writers  have 
pronounced  this  to  be,  from  the  very  nature  of  the  case,  a 
matter  of  the  most  entire  indifference,  and  the  outcry  against 
absenteeism  to  be  therefore  altogether  absurd. 

In  my  opinion,  the  analysis  of  the  subject  is  not  pushed  as 
far  as  it  ought  to  be,  when  all  unproductive  consumptions,  of 
equal  value,  are  assumed  to  have  precisely  the  same  effect  on 
the  wealth  and  prosperity  of  a  people.  There  are  two  reasons, 
founded  on  the  prir-ciples  of  political  economy,  why  a  certain 
value  consumed  unproductively  at  home  should  be  more 
advantageous  to  a  country  than  an  equal  value  when  so  con- 
sumed abroad.  The  possessor  of  the  wealth  consumed  is 
assisted  in  consuming  it  by  his  family,  as  well  as  by  the 
domestics  and  other  persons  who  may  be  in  any  way  em- 
ployed by  him ;  and  counting  all  these  in  the  number  of 
absentees,  the  diminution  in  the  population  of  the  country, 
whence  they  have  absented  themselves,  will  not  appear  to  be 
by  any  means  insignificant.  And  again,  had  all  these  staid  at 
home,  there  can  be  no  doubt,  however  unproductively  the 
head  of  each  family  might  consume  his  income,  that  a 
certain  amount  would  be  added  to  the  wealth,  and,  as  a  con- 
sequence, to  the  population  of  the  country,  by  means  of  the 
savings  of  the  persons  whom  he  employs.    All  these  effects 


POLITICAL  ECONOMY.  341 

are,  nevertheless,  inconsiderable  when  compared  with  those 
which  have  been  supposed  to  result  from  the  practice  of 
absenteeism. 

To  avoid  the  possibility  of  my  meaning  being  misappre- 
hended, as  well  as  to  obviate  any  seeming  inconsistency  with 
my  own  definitions  in  what  has  just  been  deUvered,  I  shall 
here  remind  the  reader  that,  in  speaking  of  the  consumption  of 
an  individual  as  being  at  any  time  wholly  unproductive,  I  do 
so,  in  accordance  to  the  usage  of  political  economists  gene- 
rally, on  the  ground  of  all  the  wealth,  material  or  immaterial, 
which  is  produced  for  himself  and  family  by  the  persons 
whom  he  employs  for  the  purpose,  being  consumed  by  him 
unproductively,  and  therefore  without  constituting  any  per- 
manent addition  to  the  national  wealth. 

It  may  be  proper,  too,  to  meet  an  objection  that  may  per- 
haps be  made  to  the  full  force  of  one  of  the  reasons  assigned 
above  for  absenteeism  being,  to  a  certain  extent,  an  evil. 
The  absentee,  it  may  be  said,  when  he  goes  abroad,  does  not 
necessarily  take  with  him  the  persons  whom  he  means  to 
employ  in  his  service.  When,  for  example,  an  Irish  nobleman 
changes  his  residence  from  Dublin  to  Paris,  his  servants,  and 
others  who  minister  in  any  way  to  his  desires,  will  for  the 
most  part  be  Frenchmen,  and  not  Irishmen.  This  circum- 
stance is,  notwithstanding,  a  matter  of  no  consequence  here. 
If  the  means  for  supporting  a  given  population  be  increased 
or  diminished,  population  will,  on  the  principles  in  relation  to 
it  which  have  been  explained  in  a  previous  part  of  this  work, 
be  sooner  or  later  increased  or  diminished  proportionally,  or 
nearly  so.  And  whether  or  not  all  the  persons  to  be  employed 
in  furnishing  the  services  or  commodities  which  shall  be 
actually  consumed  by  the  absentee  and  his  family  are  brought 
from  Ireland  to  France,  the  result,  in  so  far  as  we  are  at 
present  concerned,  will  be  the  same.  In  both  cases  alike,  there 
will  be  eventually  a  less  number  of  Irishmen,  and  a  greater 

44 


342  THE  PRINCIPLES  OF 

number  of  Frenchmen,  in  existence,  than  there  would  other- 
wise be. 

Now  when  we  have  succeeded  in  shewing  that  the  progress 
of  weahh  and  population  in  a  country  is  repressed  or  retarded 
by  any  measure,  the  inference  may  be  drawn  that  the  measure 
in  question  has  also  a  tendency  to  deteriorate  the  genera]  con- 
dition of  the  people.  Hence  absenteeism  has  an  injurious 
effect,  to  a  certain  extent,  upon  the  condition  of  the  people  of 
Ireland. 

The  circumstance  of  the  incomes  of  the  absentees  being 
received  by  them  in  the  form  of  money  will  neither  add  to  nor 
take  from  the  strength  of  the  argument  above  stated.  As 
money  is  abstracted  from  a  country  in  one  direction,  it  must 
necessarily  flow  into  it  from  some  or  many  others,  on  account 
of  the  tendency  to  a  general  fall  of  prices  consequent  upon 
such  abstraction  of  it.  Indeed,  in  almost  every  instance  of 
the  remitting  of  income  from  one  country  to  another,  it  will 
not  be  money,  but  commodities  other  than  money,  that 
will  be  remitted ;  the  money  actually  received  by  the  parties 
being  in  reality  the  proceeds  of  the  sale  of  those  commodities, 
— which  proceeds  are  thus  received  by  them  through  the 
instrumentaUty  of  bills  of  exchange. 

I  may  here  add  that,  in  stating  the  disadvantages  resulting 
to  a  country  from  the  absence  of  some  of  its  inhabitants,  I  have 
also  stated  the  advantages  to  be  derived  by  a  country  from 
foreigners  who  travel,  or  temporarily  reside,  in  it :  for  in  rela- 
tion to  our  immediate  subject,  what  is  one  country's  loss  is 
another's  gain. 

Concerning  the  effects  of  an  emigration  of  a  portion  of  the 
inhabitants  of  one- country  to  another,  I  have  already  treated 
in  my  second  book. 


PoiiTiCAii  KcoifOMr.  343 


CHAPTER  X. 

OF  PAUPERISM. 

Having  examined  in  succession  the  different  modes  in 
which  the  condition  of  the  labourers  of  a  community  may  be 
improved,  or  in  which  that  condition  has  been  erroneously 
supposed  to  be  susceptible  of  improvement,  I  now  come  to  the 
very  important  andditficult  subject  of  pauperism.  What  are 
we  to  do  with  the  able  bodied  poor  who  are  unable  to  find 
employment  1  And  what  with  the  sick,  the  aged,  and  the 
young,  who  are  unable  to  work  ? 

For  a  considerable  period  of  time,  the  injunctions  of  the 
Bible,  and  the  example  of  Christ,  were  so  interpreted  as  not 
only  to  justify,  but  even  to  sanction,  the  indiscriminate  giving 
of  alms  to  the  poor.  It  was  thought  that  nothing  could  be 
more  acceptable  to  our  Maker  than  to  establish  hospitals  and 
other  institutions  of  charity,  in  which  the  parties  gratuitously 
provided  for  enjoyed  more  comforts,  in  sickness  and  in  health, 
than  those  of  the  same  class,  who,  or  whose  relatives  and  friends 
for  them,  preferred  to  get  along,  under  all  circumstances, 
without  any  extraneous  aid.  A  premium  was  thus  administered 
to  idleness  and  improvidence;  and  it  is  no  wonder  that  industry, 
independently  of  the  co-operation  of  other  causes,  should  have 
lain  comparatively  dormant,  and  pauperism  should  have 
rapidly  propagated  itself. 

At  length,  the  appearance  of  the  celebrated  "  Essay  on 
Population,"  by  Mr.  Malthus,  opened  the  eyes  of  the  political 
economist  to  the  evils  of  this  system ;  and,  for  a  time,  led 
some  of  them  almost  to  revert  to  that  indifference  of  feeling, 
concerning  the  poor  and  the  wretched,  which  pervaded  the 
heathen  world  before  the  light  of  Christianity  dawned  upon  it. 
Here  a  state  of  things  was  presented  in  which  religion  and 


344  THE  PRINCIPLES  OF 

science  seemed  to  be  in  direct  opposition  to  each  other.  Many 
good  people  were  disposed  to  escape  from  this  difficulty  by 
simply  denouncing  the  speculations  of  pohtical  economy,  as 
metaphysical  and  obscure,  and  as  even  pregnant  with  dan- 
gerous errour ;  while,  on  the  other  hand,  not  a  few  of  those 
who  professed  to  be  guided  in  their  practice  by  the  principles 
of  this  science  sought  to  reconcile  them  with  the  precepts  of 
the  Gospel,  as  well  as  with  their  own  kindly  feelings,  by 
making  a  marked  distinction  between  public  and  private 
charity,  and  by  maintaining  the  propriety  of  administering  the 
latter  only,  and  of  administering  it  too  only  in  extreme  cases  ; 
so  as  to  affect  injuriously  in  the  slightest  possible  degree 
the  habits  of  independence  and  forethought  of  the  labouring 
poor. 

With  the  progress  of  investigation,  the  differing  parties 
have,  however,  been  brought  much  nearer  to  each  other ; 
until  now  the  subject  of  pauperism  admits  of  being  expounded 
in  entire  conformity  both  to  scientific  principles  and  christian 
precept.  Political  economy  has  thus,  like  geology,  furnished 
us  with  a  r(  markable  instance  of  a  science  which,  at  a  certain 
stage  of  its  advancement,  seemed  to  lead  to  results  incompati- 
ble with  th3  certainty  of  our  previous  knowledge;  but  which, 
on  its  farther  advancement,  may  be  cited  as  a  striking  illus- 
tration of  the  consistency  of  truth.  And  from  this,  I  may  be 
permitted  to  add,  we  derive  the  important  lesson, — a  lesson 
which  I  would  inculcate  upon  all  those  individuals  who  find 
it  easier  to  utter  vituperations  of  the  science  of  political 
economy  than  to  refute  its  conclusions  by  reasoning, — that 
the  only  effectual  method  to  be  adopted  by  any  class  of  men 
to  persuade  the  rest  of  the  world  to  be  of  their  opinion,  if 
their  opinion  be  a  correct  one,  is  not  to  sneer  at,  and  repress 
by  every  means  in  their  power  the  cultivation  of  any  branch 
of  human  knowledge  which  may  seem  to  oppose  that  opinion, 
but,  on  the  contrary,  to  do  every  thing  they  can  to  promote  its 
increased  cultivation.     The  consistency  of  the  great  system  of 


POLITICAL  ECONOMY.  845 

truth  is  a  proposition  which  constitutes  the  main  argument  for 
the  unity  of  God,  and  which  is  indeed  the  foundation  of 
natural  theology ;  and  it  cannot  be  too  strongly  impressed  on 
the  mind  of  every  reasoner,  or  the  imjnety  too  firmly 
realised  by  him  of  undervaluing,  or  aflfecting  to  undervalue, 
the  investigations  of  science,  in  whatever  channel  they  may 
be  directed. 

But  to  proceed  with  our  subject.  I  shall  first  examine  the 
case  of  the  able-bodied  poor.  That  of  the  infirm  and  the  sick 
will  then  present  to  us  no  difficulty.  And  let  us  begin  with 
the  administration  of  private  charity. 

Suppose  in  the  actual  condition  of  things  in  the  city  of 
Philadelphia,  whatever  this  may  be,  the  wealthy  to  appro- 
priate a  certain  portion  of  their  incomes,  to  the  value  say  of 
$100,000,  for  the  relief  of  the  poor  who  are  able  and  willing 
to  work,  but  who  find  themselves  unable  to  obtain  employ- 
ment. What  will  be  the  series  of  changes  which  will  ensue  ? 
And  what,  more  especially,  will  be  the  ultimate  effect  pro- 
duced ? 

Here  however,  before  attempting  an  answer  to  the  foregoing 
questions,  I  feel  the  importance  of  stating  distinctly  what  is 
meant  when  we  speak  of  the  poor,  or  the  labouring  classes 
generally,  being  unable  to  obtain  employment.  The  expres- 
sion, I  shall  remark,  is  one  having  reference  to  time.  What- 
ever may  be  the  number  of  workmen  who  happen  at  any 
period  to  be  without  employment,  when  compared  with  the 
number  who  continue  to  be  employed,  they  will  be  eventually 
provided  for  by  a  fall  of  wages.  The  wages,  actually  paid, 
will  come  to  be  divided  among  all  the  workmen.  This  would 
at  least  be  the  case,  were  not  one  set  of  workmen  thrown  out 
of  employment  as  another  is  in  the  act  of  obtaining  it.  If  the 
unemployed  labourers,  then,  could  only  wait  long  enough,  they 
would  in  no  event  become  the  objects  of  charity.  Here  we 
have  the  ditliculty,  and  the  whole  difficulty,  in  respect  to  them. 
But  many  of  them  will   be   utterly   unable   to   wait   long 


346  THE    PRINCIPLES  OF 

enough,  and  will  earnestly  appeal  to  the  sympathies  of  their 
fellow-citizens  for  aid  while  they  are  in  a  state  of  transition 
from  employment  to  employment,  or  from  the  service  of  one 
employer  to  that  of  another.  And  it  is  to  meet  this  appeal, 
that  the  distribution  among  them  of  the  $100,000  above 
mentioned  is  supposed  to  be  made. 

Let  this  sum  be  distributed  among  them,  in  the  first  place, 
gratuitously.  I  need  scarcely  say  what  a  premium  would 
thus  be  bestowed  on  improvidence  and  idleness.  The  expec- 
tation of  being  supported,  in  part  or  wholly,  when  unprovided 
with  employment,  will  render  the  workmen  generally  less 
anxious  to  obtain  it,  or,  having  obtained  it,  less  careful,  by  a 
diligent  performance  of  the  work  assigned  them,  to  secure  to 
themselves  a  continuance  of  it.  It  will,  in  consequence, 
necessarily  happen,  independently  too  of  any  influx  of  paupers 
from  neighbouring  districts  in  which  an  equally  extensive 
charity  may  not  have  been  exercised,  that  the  claimants  for 
gratuitous  aid  will  be  multiplying  from  year  to  year;  and  where 
$100,000  was  deemed  to  be  an  amount  sufficiently  ample  to 
administer  all  the  aid  required,  double  the  amount  will,  before 
long,  be  inadequate  for  this  purpose.  Indeed,  no  limit  will  be 
assignable  to  the  increase  of  pauperism  and  of  the  funds 
requisite  for  its  relief.  The  process  described,  if  only  continued 
long  enough,  would  not  stop  until  all  the  property  of  the  rich 
was  divided  among  the  poor, — a  state  of  things  which,  as  I 
have  before  explained,  could  not  fail  to  be  yet  farther  deterio- 
rated, so  that  at  length  one  scene  of  pauperism  and  wretched- 
ness would  pervade  the  community. 

In  what  has  just  been  stated,  I  have  taken  no  notice  of  the 
particular  source  whence  the  funds  which  have  been  charitably 
applied  were  derived.  They  may  have  constituted  a  portion 
of  the  wealth  that  was  destined  by  its  possessors  to  a  pro- 
ductive consumption;  or  a  portion  of  the  wealth  that  was 
destined  by  them  to  an  unproductive  one.  To  the  extent  in 
which  the  former,  rather  than  the  latter  of  these  two  supposi- 


POLITICAL  ECONOMY.  347 

tions,  may  have  corresponded  with  the  facts  of  the  case,  an 
additional  reason  would  be  presented,  wholly  superfluous  as  it 
is,  why  the  most  injurious  consequences  should  ensue  from  the 
administration  of  charity  in  the  manner  which  has  been 
described.  Capital  will  have  been  transferred  from  the  support 
of  the  employed  poor  to  the  support  of  the  unemployed  poor ; 
in  many  cases,  from  the  support  of  the  industrious  workman  to 
that  of  the  idle  and  worthless  portion  of  society.  The  eflTects 
before  pointed  out  cannot  fail,  on  this  account,  to  be  aggra- 
vated, and  to  be  brought  on  with  a  greater  rapidity. 

Next,  let  us  suppose  the  ^100,000  in  question,  instead  of 
being  bestowed  gratuitously,  to  be  employed  in  setting  the 
unemployed  poor  to  work  in  the  business  of  production.  It 
will  then,  of  course,  constitute  a  portion  of  the  capital  of  the 
country  ;  and  its  eflTects  on  the  condition  of  the  poor  will  be 
the  same  as  those  of  any  other  equal  portion  of  capital. 
When  once  invested,  it  will  however,  no  more  than  any  other, 
furnish  employment  to  the  workmen  who  may  happen  to'be 
unemployed.  These  will  have  to  be  provided  for  in  the  time 
to  come,  that  is  if  their  number  continue  to  be  on  the  average 
the  same,  by  a  like  subtraction  as  before  from  the  incomes  of 
individuals.  But  their  number  cannot  fail  to  be  augmented, 
in  consequence  of  the  habits  of  improvidence  which  the 
greater  probability  of  obtaining  employment,  when  from  any 
cause  they  have  been  deprived  of  it,  must  necessarily  gene- 
rate ;  and  a  larger  and  a  yet  larger  sum  will,  therefore,  be 
requisite,  in  order  to  aflx)rd  the  same  degree  of  relief  from 
year  to  year.  Although,  very  probably,  a  certain  portion 
of  the  w^ealth  which  would  otherwise  have  been  consumed 
unproductively  will  have  been  applied  to  the  reproduction  of 
wealth,  and  for  this  reason  will  have  had  a  favourable  influ- 
ence on  the  condition  of  the  community  generally,  there  seems 
to  be  no  reason  for  doubting  that,  not  only  will  the  disposable 
property  of  the  rich,  by  the  process  now  under  consideration, 
be  in  time  exhausted,  but  also  that  the  poorer  as  well  as  the 


348  THE  PRINCIPLES  OF 

richer  classes  will,  however  slowly,  be  ultimately  reduced  to 
the  same  degree  of  wretchedness,  as  it  was  shewn  would  be 
the  case  under  our  former  supposition  of  the  charity  adminis- 
tered being  administered  gratuitously. 

Not  content  with  setting  a  certain  number  of  the  unem- 
ployed poor  to  work  at  the  ordinary  rate  of  wages,  the 
benevolent  feelings  of  some  of  the  inhabitants  of  our  smaller 
towns  have  sometimes  induced  them  to  associate  together, 
with  a  view  to  provide  work  at  that  rate  of  wages  for  every 
one  who  might  happen  at  any  time  to  be  unemployed.  The 
promise,  thus  held  out  by  the  society,  was  soon  met  by  appli- 
cations so  numerous  as  to  render  it  necessary  on  their  part  to 
solicit  donations,  in  all  manner  of  ways  from  their  fellow- 
citizens,  in  order  to  augment  the  means  at  their  disposal.  But 
the  more  they  got,  the  more  also  they  found  they  were  called 
upon  to  expend  ;  until  at  length,  they  found  themselves  over- 
whelmed  by  the  rapid  extension  of  the  pauperism  belonging  to 
the  place,  and  by  the  influx  into  it  of  that  belonging  to  other 
and  neighbouring  places.  An  utter  discouragement  then 
seized  upon  the  society,  which  either  dissolved  itself,  or  sank 
into  a  state  of  inactivity.  And  just  such  consequences  as  these 
must  ensue  from  every  attempt  to  benefit  the  poor  which  is 
founded  on  the  absurd  notion  that  the  funds  for  employing 
them,  without  compensating  them  at  a  lower  rate  of  wages 
than  the  ordinary  rate,  are  inexhaustible. 


POLITICAL  ECOXOMT.  349 


CHAPTER  XL 

THE  SUBJECT  OF  PAUPERISM  CONTINUED. 

The  two  cases  have  been  examined  in  the  preceding 
chapter  of  the  administration  of  charity  to  the  able-bodied 
and  unemployed  poor,  first  gratuitously,  and  in  the  second 
place,  if  charity  it  can  then  with  propriety  be  called,  by  setting 
them  to  work  at  the  usual  rate  of  wages.  I  shall  now  proceed 
to  the  consideration  of  the  case  of  the  poor  who  apply  for 
aid  being  underpaid  for  their  work,  or,  in  other  words  being 
paid  less  wages  than  at  the  ordinary  rate. 

Such  a  proceeding  as  this  has  been  sometimes  stigmatised 
as  a  piece  of  injustice  to  the  parties  whom  those  denomi- 
nated charitable  profess  to  relieve ;  and  the  latter  have,  in 
consequence  of  its  adoption  by  them,  been  charged,  in  no 
very  elegant  form  of  speech,  with  "  grinding  the  poor." 
Nevertheless,  since  every  other  method  of  dealing  with  the 
unemployed  portion  of  the  poorer  classes  has  been  shewn  to 
be  productive  of  evils  of  the  greatest  magnitude,  we  naturally 
turn  to  this  as  our  only  resource.  If  it  should  also  be  found 
not  to  be  available  for  our  purpose,  we  shall,  indeed,  be 
obliged  to  give  up  the  cause  of  the  poor  in  despair,  excepting 
perhaps  only  in  case  of  the  last  extremity ;  or  assenting  to 
the  doctrine, — I  had  almost  called  it  the  unreasonable  doc- 
trine,— of  the  possibility  of  the  conclusions  of  science  being 
inconsistent  with  the  precepts  of  religion,  declare  hostility 
against  political  economy  for  bringing  us  into  a  position  where 
our  reasoning  powers  are  rendered  altogether  so  unavailing. 
Fortunately,  however,  we  are  not  reduced  to  a  choice  thus 
inconsistent  with  the  analogy  of  our  knowledge  in  general. 
The  method  of  dealing  with  the  poor  which  I  am  now  con- 

45 


3o0  THE  PRINCIPLES  OF 

sidering  will  be  acknowledged  by  the  reader,  when  properly 
understood,  and  properly  carried  into  execution,  to  be  that 
which  will  reconcile  every  difficulty  of  the  kind  just  stated  ; 
and  to  be  likewise  the  only  one  by  means  of  which  the  poor  of 
the  present  generation  can  be  relieved,  when  thrown  out  of 
employment,  without  entailing  a  still  greater  degree  of 
poverty  and  misery  on  the  generation  that  is  to  follow. 

If  a  poor  man,  when  without  employment  from  the  regular 
employers  of  labour,  knew  where  to  apply  for  work  to  be  paid 
for  at  a  lower  rate  than  the  ordinary  wages,  it  is  clear  that  be 
would  very  often  make  application  for  it,  rather  than  be  with- 
out work  ;  and  having  obtained  the  work  for  which  he  applied, 
it  is  equally  clear  that  he  and  his  friends  would  diligently 
occupy  themselves  in  endeavouring  to  procure  for  him  regular 
employment  in  his  trade  or  vocation.  His  interests  will  be 
promoted  by  passing  as  soon  as  he  possibly  can  from  the  receipt 
of  a  reduced  to  that  of  the  ordinary  rate  of  wages.  He  will, 
coiisequently,  only  be  a  temporary  object  of  relief.  As  the 
same  remark  can  be  made,  too,  in  reference  to  every  person 
who  may  apply  for  work  at  a  reduced  rate  of  wages, — while 
one  set  of  labourers  are  thrown  out  of  employment,  and  are 
disposed  to  become  the  objects  of  relief  in  the  way  now  sup- 
posed, another  set  will  cease  to  be  the  objects  of  rehef,  and 
will  be  passing  into  the  service  of  the  regular  employers  or 
capitalists.  And  were  the  system  I  am  now  considering  to 
be  for  a  time  in  operation,  experience  would  teach  us  how  to 
adjust  the  wages  of  relief  in  such  a  manner  that  the  number 
of  applicants  to  obtain  them  should  be  no  greater  than  that  of 
those  who  were  dechning  to  receive  them  any  longer. 

Here  then  we  have  an  important  advantage  of  this  system 
of  managing  the  unemployed  poor  over  those  systems  con- 
cerning which  I  have  already  inquired,  to  wit,  that  it  is 
practicable  to  limit  the  number  of  objects  to  be  relieved  ; 
provided,  that  is,  there  be  nothing  in  the  system  itself,  all 
things  being    taken  into   account,  which  is  calculated  to 


POLITICAL  ECONOMY.  351 

deteriorate  the  general  condition  of  the  community, — a  posi- 
tion I  shall  now  endeavour  to  make  good. 

I  shall  admit,  in  the  outset,  that  the  confidence  of  being 
relieved  in  a  season  of  difficulty,  no  matter  how  that  relief 
may  be  administered,  will  of  necessity  have  a  tendency  to 
impair  the  habits  of  foresight  of  every  individual ;  and  all  that 
can  in  this  respect  be  said,  concerning  the  workmen  who  are 
placed  in  the  circumstances  I  have  supposed,  is  that,  consis- 
tently with  being  relieved,  their  habits  of  foresight  and 
independence  could  scarcely  be  impaired  in  a  less  degree. 

But  the  condition  of  a  people,  or  to  express  myself  in  other 
words,  the  command  which  they  possess  over  the  neces- 
saries and  luxuries  of  life,  depends  quite  as  much  upon  the 
comparative  extent  of  their  desires  for  enjoyment  as  upon 
their  habits  in  respect  to  foresight.  In  accordance  with  this 
view  of  the  subject,  it  would  in  my  opinion  be  found,  on 
comparing  together  two  different  countries,  in  one  of  which 
the  wages  of  labour  were  double  what  they  were  in  the  other, 
or  the  same  country  at  two  different  periods,  in  the  one  of 
which  periods  the  wages  paid  were  double  what  they  were  in 
the  other  period,  that  twice  as  much  would  not  be  saved  from 
the  double  rate  of  wages.  Political  economists  seem  to  me, 
indeed,  in  general  to  estimate  too  highly  the  amount  which 
the  labouring  poor  can  be  expected  to  save,  in  preference  to 
consuming  it  on  their  immediate  gratification.  It  is  to  be 
feared  that,  even  when  their  condition  shall  have  become 
improved  to  the  fullest  extent  in  which  we  can  reasonably 
expect  it  to  be,  by  far  the  greater  portion  of  their  incomes  will 
be  consumed  in  the  last-mentioned  manner,  or,  in  other  words, 
without  leaving  any  trace  of  it  behind. 

Now  the  effect,  other  circumstances  being  the  same,  of 
their  being  enabled  at  all  times  to  get  employment  at  reduced 
wages,  will  be  to  prevent  their  desires  for  luxuries  from  being 
contracted  as  much  as  they  would  otherwise  be ;  or  what  here 
obviously  amounts  to  the  same  thing,  to  enlarge  those  desires. 


352  THE  PRINCIPLES  OP 

To  satisfy  ourselves  of  this,  we  need  only  reflect  on  the 
misery  to  which  the  poorer  classes  of  the  labouring  commu- 
nity are  Uable  to  be  occasionally  subjected,  where  no  provision 
has  been  made  by  the  wealthier  portion  of  society,  or  by  the 
public,  for  assisting  them  on  the  occurrence  of  any  emer- 
gency,— a  misery  to  suffer  which  cannot  but  tend  to  render 
the  parties  less  desirous  than  they  were  to  obtain  the  range  of 
enjoyment  they  were  accustomed  to,  and  permanently  to 
degrade,  to  a  certain  extent,  their  condition. 

A  due  consideration  of  what  has  been  said  above  appears 
to  me  to  be  in  itself  quite  sufficient  to  induce  us  to  hesitate  in 
giving  our  assent  to  the  doctrine,  that  a  provision  for  the 
otherwise  unemployed  poor,  of  the  nature  supposed,  must 
necessarily  be  productive  of  more  evil  than  good.  When, 
however,  this  provision  is  accompanied  in  its  administration, 
as  it  ever  ought  to  be,  by  every  practicable  effort  to  better 
the  moral  condition  of  the  subjects  of  our  charity,  there  can 
no  longer  be  any  doubt  on  my  mind  of  the  expediency  of 
adopting  it,  and  of  complying  by  so  doing  with  the  unequivo- 
cal injunctions  of  the  religion  which  we  profess,  as  well  as 
with  the  promptings  of  our  benevolent  feelings.  Just  in  pro- 
portion as  we  shall  succeed  in  diffusing  among  the  paupers, 
whose  bodily  wants  we  contribute  to  relieve,  the  blessings  of 
religion  and  of  sound  morals,  and  shall  see  that  their  children 
receive  the  benefit  of  even  the  lowest  order  of  education,  will 
we  the  more  effectually  guard  against  the  evils  adverted  to, 
by  the  tendency  of  religion,  of  morals  and  of  education,  as 
has  been  repeatedly  mentioned,  to  enlarge  the  command  of  a 
people  over  the  necessaries  and  luxuries  of  life.  And  in  this 
way  only  it  is,  in  my  opinion,  possible  to  be  the  instrument 
of  much  immediate  good  to  the  poor  and  the  wretched,  with- 
out incurring  the  hazard  of  eventual  detriment  to  the  commu- 
nity. 

The  confidence  which  I  have  in  the  influence  of  the  moral 
appliances  of  which  I  have  been  speaking,  in  extending  the 


POLITICAL  ECONOMY.  353 

physical  enjoyments  of  a  people,  is  so  great,  that  I  have  no 
fears  of  injurious  consequences  of  any  description  to  ensue 
from  the  widest  exercise  of  private  charity  that  is  at  all 
probable.  In  my  view,  let  an  individual,  instead  of  indiscrimi- 
nately relieving  every  applicant  for  his  bounty  at  his  door, 
from  a  mistaken  notion  of  duty,  or  that  he  may  speedily  rid 
himself  of  the  annoyance  to  his  feelings  resulting  from  the 
presence  of  so  unwelcome  a  class  of  visiters,  resolve  in  no 
casC;  unless  where  the  distress  suffered  is  manifestly  extreme 
as  well  as  real,  to  administer  any  relief  whatever  to  the  poor, 
without  first  making  sufficient  inquiry  to  protect  himself  and 
the  community  from  theeflccts  of  imposture,  and  also  without 
first  visiting  the  abodes  of  misery,  or  it  may  be  of  vice,  and 
supplying  the  moral  as  well  as  physical  wants  of  their 
inmates  ; — let  him  do  this,  and  he  may  have  the  satisfaction 
of  knowing  that  the  good  which  he  is  doing,  whatever  evil 
tendencies  may  be  in  operation,  will  be  pure  and  unmixed 
good.  But  most  persons  will  say  that  they  have  not  the 
leisure  to  spare  from  their  regular  occupations,  which  is 
required  by  this  mode  of  dealing  with  the  pauperism  of  their 
vicinities ;  or  that  they  ire  otherwise  disqualified.  I  reply 
that  they  should  be  careful  not  to  mistake  their  indisposition 
to  undergo  that  trouble,  without  which  no  charity  can  be 
beneficially  exercised,  for  a  want  of  leisure,  or  for  inability  on 
their  part.  If,  however,  this  be  in  reality  the  case,  the  only 
proper  proceeding  for  them  to  have  recourse  to  is  to  appoint 
others  to  be  their  almoners  with  the  poor,  who  have  more 
adaptation  and  leisure  for  the  purpose  than  themselves,  or  who 
are  actuated  in  a  greater  degree  by  the  spirit  of  a  Howard  or 
a  Fry. 

A  question  of  great  importance,  and  one  on  w'hich  political 
economists  are  not  yet  agreed,  is  now  presented  for  our  consi- 
deration. Shall  the  relief  of  pauperism  be  left  entirely  to  the 
benevolence  of  private  individuals,  or  is  it  a  proper  subject  for 
legislative  enactment  ?    With  some,  the  abuses  of  the  poor- 


354  THE  PRINCIPLES  OF 

laws  in  England,  together  with  the  abuses  in  the  public 
administration  of  charity  which  it  is  notorious  have  not 
unfrequently  occurred  in  our  own  country,  have  induced  an 
opinion  altogether  hostile  to  any  legislation  concerning 
pauperism.  There  are  others,  on  the  other  hand,  who  mistrust 
the  adequacy  of  private  charity,  or  of  charity  administered 
by  voluntary  associations  of  individuals,  to  provide  for  all  the 
cases  of  pauperism  which  may  occur,  of  a  nature  to  render  it 
desirable  that  they  should  become  the  subjects  of  relief. 

Such  a  system  of  poor-laws  as  is  based  on  the  principle  of 
setting  the  able-bodied  pauper  to  work,  at  wages  lower  than 
the  ordinary  rate,  has  the  advantage,  over  a  condition  of 
things  in  which  he  is  left,  in  the  time  of  his  utmost  need, 
exclusively  to  the  tender  mercies  of  his  fellow-man,  in  the 
greater  certainty  of  finding  the  assistance  he  requires,  and  at 
the  time  too  when  he  most  requires  it,  as  well  as  in  the  greater 
uniformity  of  the  assistance  rendered  under  similar  circum- 
stances of  distress; — a  certainty  and  a  uniformity,  as  I  have 
shewn,  not  at  all  productive  of  injurious  consequences  to 
society ;  but  on  the  contrary  desirable,  on  the  system  of  pauper 
rehef  in  favour  of  which  I  have  expressed  myself,  because  of 
their  beneficial  effect,  in  preventing  the  labourers,  who  are 
from  time  to  time  thrown  out  of  employment,  from  being,  in 
consequence,  depressed  in  their  condition  as  much  as  they 
would  otherwise  be. 

The  great  difficulty  of  an  efficient  poor-law  lies  in  its  prac- 
tical execution.  It  is  to  be  hoped  that,  with  the  diffusion 
among  the  community  of  more  enlightened  views  of  political 
economy,  and  especially  of  the  principles  which  should  regu- 
late our  practice  in  relation  to  alms-giving  or  pauper  relief, 
properly  qualified  overseers  of  the  poor  will  be  more  readily 
procurable  than  they  have  hitherto  been.  And  I  am,  at  least, 
not  yet  prepared,  without  farther  evidence  from  experience, 
to  embrace  the  opinion  of  the  impracticability  of  every 
attempt,  by  the  action  of  the  legislature,  to  reUeve  the  destitute 


POLITICAL    ECONOJIY.  355 

portion  of  the  community,  so  as  at  the  same  time  not  to  affect 
the  pubhc  welfare  injuriously  by  the  encouragement  of  habits 
of  improvidence  and  dependence  among  the  labourers  gene- 
rally. 

One  advantage  of  a  public  provision  based  on  proper  prin- 
ciples, for  the  labouring  poor  when  thrown  out  of  employment, 
seems  to  me  to  be  sometimes  entirely  overlooked.  I  allude  to 
the  consequent  greater  willingness  of  the  poorer  classes 
generally  to  acquiesce  in  the  inequalities  of  fortune  which 
unavoidably  result  from  the  maintenance  of  the  rights  of 
property ;  rights  so  important,  in  reference  to  the  interests  of 
both  rich  and  poor,  to  be  always  inviolably  maintained. 

After  what  has  been  delivered  concerning  the  destitute 
poor  who  are  able  and  willing  to  work,  I  need  not  dwell  on 
the  case  of  the  infirm,  the  aged,  and  the  young,  who  are 
unable  to  do  so.  Few  or  none  who  refuse  to  extend  a  helping 
hand  to  the  former  class  would  refuse  it  to  the  latter ;  and  a 
large  proportion  of  those  who  earnestly  object  to  every  public 
provision  for  the  able-bodied  poor  concede,  notwithstandino^, 
the  expediency  of  such  a  provision  for  all  others.  Moreover,  if 
my  readers  shall  have  assented  to  the  general  correctness  of 
the  views  which  I  have  laid  before  him  in  this  and  the  pre- 
ceding chapter,  I  may  safely  leave  him  to  apply  those  views 
for  himself  to  the  elucidation  of  the  case  now  before  us. 

I  shall  now  conclude  what  I  have  to  say  on  the  subject  of 
pauperism  by  once  more  stating  the  main  principles  on  which 
every  systematic  effort  for  reheving  it  should  be  based. 
These  are,  first,  that  the  party  relieved  should  never  be 
rendered  as  comfortable  as  the  independent  labourer,  and, 
for  every  piece  of  work  done  by  him,  that  he  should  be 
underpaid ;  and  secondly,  that  relief  administered  to  the 
physical  wants  of  a  pauper  should,  as  far  as  practicable,  be 
accompanied  by  an  attempt  to  improve  him  religiously  and 
morally.  It  is  by  a  disregard,  or  forgetfulness,  of  these 
principles,  that  pauperism  has  been  so  often  multiplied  by  the 


356  THE   PRINCIPLES    OP 

very  means  which  were  destined  to  eradicate  it;  thus  fur- 
nishing one  of  the  most  remarkable  instances  of  the  injury 
which  benevolence,  unenlightened  by  knowledge,  is  capable 
of  inflicting. 


CHAPTER  XII. 


OF  TAXATION. 


The  only  subjects  remaining  to  be  discussed  in  the  present 
treatise  are  those  which  relate  to  the  revenue  of  the  govern- 
ment, and  the  sources  whence  it  is  to  be  derived.  These 
sources  may  be  classed  under  the  two  general  heads  of  taxa- 
tion and  public  loans.  , 

In  reference,  first,  to  taxation,  it  will  be  most  convenient  to 
inquire  into  the  operation  of  particular  taxes,  with  an  especial 
view  to  ascertain  the  parties  on  whom  they  are  ultimately 
incident,  before  deducing  the  general  principles  by  which  the 
legislature  of  a  country  ought  to  be  guided  in  the  enactment 
of  a  system  of  taxation.  It  is  in  fact,  only  by  adopting  this 
arrangement  that  those  principles  can  be  exhibited  to  the 
student  in  an  unobjectionable  form. 

I  shall  begin  with  supposing  a  tax  to  be  imposed  upon  rent, 
wherever  this  may  be  paid,  be  it  in  agriculture,  manufactures, 
or  commerce ;  or  I  may  say  simply  a  tax  upon  the  rent  of 
land;  considering  the  land,  as  was  done  in  a  preceding  book, 
as  the  representative  of  all  the  situations  or  sites  in  which 
there  is  a  return  of  rent  to  the  proprietor,  over  and  above  the 
ordinary  profits  of  the  capital  invested  by  him.  Such  a  tax 
is  merely  a  supposable  one.  From  the  impossibility  of  draw- 
ing the  line  practically  between  what  is  rent  and  what  profits. 


POLITICAL  ECONOMY.  357 

the  actual  imposition  of  it  may  be  regarded  as  out  of  the 
question.  Still  it  will  not  be  uninteresting  or  unimportant  to 
trace  its  operation  and  ultimate  incidence.  By  so  doing,  we 
shall,  indeed,  be  throwing  light  on  the  effects  of  some  very 
customary  modes  of  taxing  a  people. 

Whether  the  government  exact  the  tax  of  which  I  am 
speaking  from  the  landlord  or  proprietor  of  the  land,  or  exact 
it  from  the  farmer  to  whom  he  may  have  leased  the  land,  and 
who  pays  him  rent,  it  will  be  ultimately  incident  upon  the 
landlord  alone.  If  the  first  be  the  case,  the  landlord  will  not 
on  this  account,  on  the  renewal  of  the  lease,  be  able  to  get 
any  additional  rent  from  his  tenant ;  for  there  is  no  reason 
why  the  supply  of  or  demand  for  land  to  be  leased  should  be 
altered  in  the  slightest  degree.  He  got  as  much  as  he  could 
for  the  use  of  his  land  before  the  tax  was  imposed ;  and  he 
can  do  no  more  than  this  now.  Should  he  be  so  unwise  as  to 
insist  upon  receiving  a  higher  rent, — and  rent,  it  will  be 
recollected,  is  the  excess  of  the  net  produce  of  the  land  over 
the  ordinary  amount  of  agricultural  profits,  —  the  farmer 
would,  obviously,  not  be  able  to  realise  those  profits,  and  would 
consequently  refuse  to  take  the  lease.  So,  too,  would  every 
other  farmer ;  and  the  result  would  be  that  the  landlord  would 
have  to  cultivate  his  own  land,  and  to  continue  therefore  to 
pay  the  tax. 

On  the  other  hand,  if  we  suppose  the  tax  to  be  imposed  in 
the  first  place  on  the  farmer,  there  is  no  immediate  remedy  to 
which  recourse  can  be  had  by  him.  At  the  expiration  of  his 
lease  only,  will  he  have  it  in  his  power  to  throw  the  burthen 
of  the  tax  from  off  his  shoulders  on  those  of  his  landlord. 
Then,  however,  he  will  most  certainly  do  it  in  the  manner 
above  described. 

From  the  ultimate  incidence  on  the  proprietor  of  the  land  of 
every  tax  imposed  upon  rents,  it  follows  that  the  whole  rental, 
strictly  so  called,  of  the  land  of  a  country,  could  it  be  dis- 
tinctly separated  from  the  profits  of  the  capital  invested  upon 

46 


358  THE  PRINCIPIES  OP 

the  land,  might  be  considered  as  constituting  a  fund  for  taxa- 
tion, which  could  be  diminished  by  it  to  any  extent,  and  even 
entirely  exhausted,  without  the  community, — the  landlords 
alone  excepted, — being  subjected  to  the  payment  of  the 
minutest  portion  of  it. 

Rent  has  been  shewn  to  be  property  of  a  description  difler- 
ing  from  every  other,  in  the  very  remarkable  circumstance  of 
its  being  conferred  gratuitously  on  the  owners  of  the  land ; 
and,  whatever  may  be  its  amount  at  any  particular  period  of 
time,  its  owners  may,  almost  always,  calculate  upon  deriving 
from  it  a  revenue  which  will  be  continually  augmenting  in 
every  succeeding  period  of  the  advancement  of  the  country  in 
wealth  and  population,  and,  all  the  while,  without  any  sacrifice 
on  their  part.  Now  granting  the  extreme  importance  to  the 
welfare  of  society  of  preserving  inviolate  the  rights  of  property, 
and  of  studying  to  make  the  burthen  of  taxation  press  as 
equally  as  practicable  on  all  the  classes  composing  it,  might 
it  not  be  asked,  with  some  plausible  expectation  at  least  of  the 
inquiry  being  answered  in  the  affirmative : — Whether,  under 
the  circumstances  which  have  been  mentioned,  it  would  not 
be  just,  as  well  as  expedient,  to  raise  the  whole  of  the  public 
revenue  by  a  tax  upon  the  rent  of  land,  and  if  more  revenue 
were  needed  than  all  the  rents  of  the  country  would  amount 
to,  not  to  resort  to  other  taxes  until  those  rents  had  been  first 
exhausted  1  There  could  be  no  hesitation,  it  seems  to  me,  to 
give  an  affirmative  answer,  if  such  a  method  of  taxation  had 
been  practised  in  the  country  from  its  original  settlement. 
Every  person  then,  who  at  any  time  became  possessed  of 
land,  would  be  aware  that  it  would  never  yield  him  a  greater 
revenue  than  the  ordinary  profits  of  the  capital  invested  by 
him  upon  it,  and  that  it  would  never  be  worth  more  than  the 
value  of  such  capital; — that  is,  provided  the  government  were 
always  to  take  for  itself  the  whole  of  the  rent.  And  in  case 
it  only  took  a  part,  the  land,  when  sold,  would  be  transferred 
from  the  seller  to  the  buyer,  subject  to  the  whole  of  the  rent 


POLITICAL    ECONOMY.  359 

being  taken  at  the  pleasure  of  the  government.  This  condi- 
tion of  the  sale  would  have  its  full  effect  on  the  value  of  the 
land,  and  could  manifestly  be  pleaded  by  the  government  in 
justification  of  its  taking  afterwards  as  much  of  the  rent  as  it 
pleased.  But,  in  the  actual  state  of  things,  the  case  is  very 
different.  The  possession  of  the  lands  of  a  country  has  been 
passing,  it  may  be  for  many  centuries,  with  more  or  less 
frequency,  from  individual  to  individual ;  every  new  purchaser 
having  as  entire  a  reliance  on  the  secure  enjoyment  of  the 
produce,  or  advantages  generally  to  be  derived  from  it,  as  he 
could  possibly  have  in  the  possession  of  any  other  kind  of 
property.  Hence  it  is  that  it  would  be  quite  as  unjust,  and 
therefore  inexpedient,  to  tax  exclusively  or  in  an  extraordinary 
degree  the  owners  of  the  soil,  as  it  would  be  to  tax  exclu- 
sively or  in  an  extraordinary  degree  any  other  class  of  the 
community. 

It  will  be  impossible  to  take  from  the  incomes  of  the  landr 
lords,  or  of  any  other  class  of  men,  without  disadvantage  to 
the  community  at  large ;  since  the  whole  amount  of  savings 
will  consequently  be  lessened, — or,  in  other  words,  the  rate  of 
the  accumulation  of  capital  will  be  retarded.  Hence  some  of 
my  readers  may,  perhaps,  think  it  inaccurate  to  speak  of  the 
ultimate  incidence  of  a  tax  on  one  class  of  the  community 
alone.  And  so  it  would  be,  did  not  the  political  economist 
neglect  for  the  time  all  consideration  of  any  disadvantage  so 
arising ;  or  which  is  the  same  thing,  assuming  it  to  arise,  did 
he  not  limit  his  attention  in  the  case  to  the  greater  degree  in 
which  it  affected  one  class  rather  than  another. 

Others  among  my  readers  may  regard  the  remarks  just 
made  to  be  altogether  superfluous,  and  the  impossibility  of 
taking  from  the  incomes  of  certain  classes  of  the  community 
without  disadvantage  to  every  other  to  have  been  too  hastily 
asserted.  They  may  maintain  that,  if  what  is  taken  is  destined 
to  a  necessary,  and  therefore  a  productive  expenditure  or 
consumption,  the  national  wealth  could  not  be  thereby  dimi- 


360  THE  PRINCIPLES  OF 

nished,  nor  the  rate  at  which  capital  is  accumulating  be,  in 
consequence,  in  any  degree  retarded.  But  while  this  is  unde- 
niably true,  I  shall  remark  that,  in  what  has  been  above 
stated,  and  when  the  question  is  argued  of  the  ultimate  inci- 
dence of  any  tax  imposed,  all  taxation  is  regarded  as  a 
sacrifice  of  a  certain  portion  of  the  national  wealth,  which, 
however  desirable  or  necessary  it  may  be,  is  nevertheless  an 
evil  to  be  deprecated. 


CHAPTER  XIII. 

THE  SUBJECT  OF  TAXATION  CONTINUED. 

Let  us  now  trace  the  consequences  of  imposing  a  tax  on 
the  profits  of  capital,  and  on  the  profits  of  capital  in  all 
employments  alike. 

Such  a  tax,  where  it  has  not  the  effect  of  altering  the 
exchangeable  values  of  things,  will,  obviously,  not  have  the 
least  influence  on  the  amount  of  rents  paid.  The  proportions 
in  which  the  community  will  choose  to  consume  the  various 
necessaries  and  luxuries  of  Hfe  will  continue  the  same  ;  and 
these  will,  therefore,  be  produced  in  the  same  proportions  as 
before.  No  transfers  of  capital  will  take  place ;  and  the  share 
of  the  whole  produce  of  the  land,  and  of  the  whole  produce 
too  of  the  labour  and  capital  of  the  country,  which  is  distri- 
buted to  the  landlords,  will  remain  unaffected.  But,  so  long 
as  we  suppose  wages  to  suffer  no  diminution,  the  rate  of  profits 
will  have  been  lowered.  Now,  when  the  rate  of  profits  is 
lowered,  it  has  been  shewn  that  the  prices  of  all  such  commo- 
dities as  are,  in  a  greater  degree  than  usual,  the  products  of 
fixed  rather  than  of  circulating  capitals  will  fall,  when  compared 


POLITICAL  ECONOMY.  361 

with  the  prices  of  such  as  are  in  a  greater  degree  the  pro- 
ducts of  circulating  than  of  fixed  capitals.  In  so  far,  conse- 
quently, as  agricultural  products  may,  on  this  account,  have  a 
higher  or  a  lower  exchangeable  value,  will  it  be  possible  for 
rents  to  be  affected  by  a  tax  imposed,  in  the  first  instance,  on 
the  profits  of  capital. 

Wages,  however,  will  not  be  maintained  at  their  former 
rate,  if  that  of  profits  be  lowered.  In  whatever  degree  the 
capitalists  may  be  disposed  to  economise  their  expenditure, — 
their  unproductive  expenditure  I  mean, — it  is  not  to  be  sup- 
posed that  they  will  economise  it  to  such  an  extent,  as  to 
enable  themselves  to  save  as  much  out  of  their  incomes  as 
before.  Hence  capital  will  accumulate  less  rapidly  than  it 
would  have  done  but  for  the  imposition  of  the  tax  under  con- 
sideration. The  consequence  of  this  on  wages,  I  shewed, 
when  treating  of  population,  to  be  to  reduce  them  to  a  lower 
level.  This,  again,  implies  that  profits  will  not  fall  quite  as 
much  as  they  would  otherwise  have  done ;  so  that  the  tax, 
instead  of  being  incident  exclusively  on  profits,  will  come  to 
be  divided  between  profits  and  wages. 

The  effect  of  a  fall  of  wages  on  the  relative  prices  of 
commodities  being  the  opposite  of  that  resulting  from  a  fall 
in  the  rate  of  profits,  viz.  to  cause  the  exchangeable  values 
of  those  which  are  the  products  chiefly  of  fixed  capitals  to 
rise,  when  compared  with  those  which  are  the  products 
chiefly  of  circulating  capitals,  it  is  very  possible  that  the  fall 
of  both  profits  and  wages,  just  deduced,  might  so  neutralise 
each  other's  influence,  as  to  prevent  any  alteration  whatever 
from  occurring  in  the  exchangeable  value  of  agricultural 
products ;  and  therefore  in  the  rent  of  land,  except  ingsuch 
as  may  continue  to  result  from  the  general  retarding  of  the 
rate  of  the  accumulation  of  capital.  It  will  then  be  correct 
to  say  that  no  portion  of  the  tax  originally  imposed  on  the 
profits  of  capital  will  be  incident  upon  the  landlords. 
To  what  extent  a  tax  on  the  profits  of  capital  is  incident 


362  THE  PHINCII'LKS    OF 

upon  wages,  will  depend,  other  circumstances  being  the  same, 
on  the  rate  of  profits.  Where  profits  are  high,  the  motive  to 
save  will  be  greater,  as  has  before  been  mentioned,  than  it 
will  be  where  they  are  low  ;  and  the  same  proportional  lax 
upon  them  may,  consequently,  cause  very  different  values,  in 
the  two  cases,  to  be  abstracted  by  the  capitalist  from  his  pro- 
ductive expenditure.  In  other  words,  the  degree  in  which  the 
labourer  may  be  affected  disadvantageously  will  be  according 
to  that  in  which  the  rate  of  profits  was  previously  reduced. 

By  diminishing  the  capital  of  a  country,  or,  what  amounts 
to  the  same  thing,  by  retarding  its  increase,  a  tax  on  the 
proceeds  of  capital  operates,  very  plainly,  in  the  same  manner 
as  if  it  were  a  tax  on  capital  itself.  If  the  government 
indeed,  instead  of  ten  per  cent,  upon  profits, — profits  being 
say  at  the  rate  of  ten  per  cent,  on  the  capital  invested, — 
were  to  tax  capital  one  per  cent.,  the  sum  to  be  paid  would 
be  the  same  in  both  cases ;  and  the  productive  would,  in  all 
probability,  bear  very  much  the  same  proportion  to  the 
unproductive  consumption  of  the  capitalist  in  the  one  case 
as  in  the  other,  were  it  not  for  the  impression  on  the  imagi- 
nations of  men  of  the  names  given  to  the  two  taxes  respec- 
tively. To  a  certain  extent  it  will  for  this  reason  be  true 
that,  when  an  individual  has  a  portion  of  his  capital  taken 
from  him,  he  will  more  readily  acquiesce  in  the  loss  he  has 
sustained,  and  will  be  disposed  to  make  somewhat  less  of  a 
sacrifice  of  present  gratification  for  the  purpose  of  replacing 
it,  than  if  the  same  amount  were  taken  from  his  income. 
The  extent  of  this  diflerence  is  however,  not  unfrequently, 
very  much  exaggerated. 

Here,  as  in  the  case  of  a  tax  on  rents,  it  may  be  observed, 
that,  on  account  of  the  impossibility  of  distinguishing  in 
practice  between  rents  and  profits  in  those  employments 
where  rents  are  paid,  especially  in  agriculture,  a  tax  on 
profits  is  merely  a  hypothetical  tax.  And  the  same  may 
also  be  observed  in  reference  to  a  tax  on  capital ;  since  we 


POLITICAL  ECONOMY.  363 

can  in  no  instance  form  any  definite  estimate  of  the  am.ount 
of  capital  which  has  been  expended,  or  would  recjuire  to  be 
expended,  to  bring  a  portion  of  the  soil  of  a  country  into  its  . 
present  condition. 

Let  us,  next,  look  at  the  nature  of  a  tax  on  wages.  Such  a 
tax,  it  may  be  surmised,  cannot  be  as  dissimilar  in  its  mode 
of  operation  from  that  of  a  tax  on  capital,  as  some  have 
supposed  ;  for  it  will  be  recollected  that  wages  constitute  one 
of  the  elements  of  capital.  I  say  surmised,  since  things 
which  go  by  the  same  name,  on  account  of  their  agreement 
in  certain  particulars,  may  yet,  in  other  respects,  be  pos- 
sessed of  very  different  attributes.  I  shall  proceed,  then,  to 
compare  together  the  series  of  changes  which  will  ensue  on 
the  imposition  of  a  tax  upon  the  wages  of  labour,  and  of  an 
equal  tax  on  capital  in  general. 

First,  it  is  evident  that,  if  the  government  shall  exact  from 
the  employer  of  labour  a  sum  proportional  to  the  amount  of 
wages  paid  by  him,  he  will  regard  it  precisely  in  the  same 
light  that  he  would  an  equal  tax  on  the  whole  of  his  capital; 
because,  in  the  existing  state  of  the  arts,  he  will  of  course 
find  it  for  his  interest  to  apportion  his  capital  between 
wages  and  the  other  descriptions  of  it  just  as  he  did  before. 
A  tax  on  wages  is  thus  far,  therefore,  necessarily  identical 
with  a  tax  on  capital. 

Now  let  the  labourer  be  taxed,  and  a  certain  per  centage, 
suppose  ten  per  cent.,  be  subtracted  from  his  wages  by  the 
government.  The  question  is : — Will  he  be  subjected  to 
more  deprivations  than  if  the  same  value  had,  in  the  first 
instance,  been  taken  from  the  capital  of  his  employer  ?  Will 
the  fall  of  wages,  in  fact,  be  greater  in  the  former  case  than 
in  the  latter  1  It  seems  to  me  that,  in  reference  to  the  imme- 
diate results  produced,  no  reason  can  be  conceived  for 
thinking  that  the  fall  would  be  greater  in  the  slightest 
degree.  As  this  is  a  point  of  some  importance,  I  would 
not  only  request  of  the  reader  to  consider  it  well  before  he 


3(54  THE    PRINCIPLES    OF 

advances  farther,  but  likewise  to  look  carefully  at  what 
would  happen  if  the  contrary  from  the  imposition  of  a  tax 
were  to  occur;  for,  by  this  means,  the  point  itself  under 
consideration  cannot  fail  to  be  more  clearly  understood.  In 
place  of  supposing  a  tenth  of  his  income  to  be  taken  from 
the  labourer,  or  an  equal  sum  from  the  capitalist  who 
employs  him, — let  an  amount  equivalent  to  the  tenth  part  of 
his  income  be  added  to  it,  by  the  repeal  of  a  tax  previously 
imposed  or  in  any  other  conceivable  way,  or  let  an  equal  value 
be  added  to  the  existing  capital  of  the  country.  The  reader 
cannot  fail  to  perceive,  on  a  moment's  reflection,  that  such 
an  augmentation  of  this  capital  can  in  reality  only  occur,  by 
the  capitalists  being  enabled  to  pay  wages  exceeding  in 
amount  the  wages  before  paid  by  the  value  which  has  been 
added  to  capital ;  and  that  the  immediate  effects  resulting 
from  the  two  additions  which  have  been  supposed  must  bo 
precisely  the  same. 

And  if  the  immediate  effects  in  the  two  cases  be  the  same, 
I  need  scarcely  add  that  the  ultimate  ones  must  likewise  be 
the  same. 

But  even  though  the  labourer  should  be  affected  in  the  first 
instance  in  a  greater  degiee  when  a  tax  is  imposed  upon  his 
wages,  than  when  it  is  imposed  upon  the  capital  of  his 
employer,  it  will  not  follow  that  his  wages  in  the  two  cases 
will  be  ultimately  different.  On  the  contrary,  through  the 
more  or  less  active  operation  of  the  principle  of  population, 
the  reader  cannot  but  perceive  that  very  much  the  same  rate 
of  wages  will  come  to  be  paid  eventually  in  the  one  case  as 
in  the  other. 

If  a  tax  be  imposed  on  the  profits  of  capital,  on  capital, 
or  on  wages,  in  one  branch  of  industry  only,  or  in  a  greater 
degree  in  any  one  branch  of  industry  than  in  others  gene- 
rally, the  effect  will  plainly  be  to  cause  a  different  distribution 
of  the  capital  and  labour  of  the  country ;  these  being  trans- 
ferred from  where,  in  consequence  of  the  supposed  unequal 


POLITICAL  ECONOMY.  365 

taxation,  they  are  now  applied  at  diminished  rates  of  profits 
and  wages,  to  where  these  rates  are  comparatively  higher. 
This  new  distribution  too,  of  capital  and  labour,  will  be 
accompanied  by  a  diminished  production  of  wealth;  since 
the  community  will  be  obliged  to  consume  to  a  certain  extent 
what,  but  for  the  tax  imposed,  they  would  not  have  preferred 
to  consume. 


CHAPTER  XIV. 


THE  SAME    SUBJECT  CONTINUED. 


A  TAX  on  property  differs  from  one  on  capital,  first,  in 
being  a  tax  on  the  landlords  as  well  as  on  the  capitalists. 
The  land  possessed  by  the  former  class  will  have  a  certain 
value  ;  and  it  is  on  this  value  that  the  tax  in  question  is 
imposed.  But  two  pieces  of  land,  or  other  portions  of  real 
estate,  of  the  same  exchangeable  value,  may  yield  very 
different  returns  to  their  proprietor.  Supposing  them  to  be 
worth  each  $10,000,  the  one  may,  for  example,  yield  him 
$600,  and  the  other  $300.  Hence  it  may  possibly  be  argued, 
that  a  tax  on  property  would  here  be  a  very  unequal  one.  Not 
so,  however ;  because  the  only  reason  why  the  land  which 
yields  only  $300  is  worth  as  much  as  that  yielding  $600  is 
that  it  is  expected  to  compensate  for  a  present  deficiency  by 
a  larger  future  return.  Accordingly,  as  the  period  for  this 
approaches,  the  value  of  the  land  will  be  continually  aug- 
menting. And  its  value  at  the  end  of  a  year  will  be  $300 
more  than  it  is  now.  Its  proprietor  has,  therefore,  no 
reason  to  complain  of  the  rate  at  which  he  is  taxed.  Inde- 
pendently too  of  this  reasoning,  the  mere  fact  of  this  property 

47 


366  THE  PRINCIPLES  OP 

being  of  equal  exchangeable  value  with  that  of  the  other  piece 
of  land  might  be  assumed  as  a  sufficient  ground  for  such 
taxation ;  for  this  circumstance  alone  is  satisfactory  evidence 
of  equal  advantages,  all  things  considered,  being  derived  in 
the  two  cases  which  are  compared  together. 

But  secondly,  a  tax  on  property  will  equally  affect  the 
wealth  which  is  consumed  unproductively  and  that  which  is 
consumed  productively ;  and  from  this  view  of  the  nature  of 
such  a  tax,  its  effects  will  very  nearly  correspond  with  those 
that  have  been  shewn  to  be  consequent  upon  a  tax  on  the 
profits  of  capital. 

On  a  review  of  what  has  thus  far  been  delivered  on  the 
subject  of  taxation,  I  cannot  doubt  that  my  readers  will  be 
led  to  assent  to  the  general  equity  of  a  tax  on  property. 
There  are  two  considerations  only  which,  in  my  opinion, 
may  perhaps  induce  some  of  them  to  pause  for  a  moment  before 
assenting  to  it, — that  many  persons  having  large  incomes 
have,  nevertheless,  comparatively  very  little  property, — and 
that  it  may  be  difficult  to  form  a  proper  scale  of  taxation 
for  the  rich  and  the  poor. 

In  respect  to  the  first  of  these,  it  will  be  recollected  that, 
when  capital  is  taxed,  the  effects  are  very  nearly  the  same 
as  they  are  when  an  equal  tax  is  imposed  on  the  profits  of 
capital,  and  again  that  a  tax  on  profits  will  operate  very 
much  in  the  same  manner  as  one  upon  wages.  And  in  respect 
to  the  second  consideration  just  mentioned,  I  would  make  the 
scale  of  taxation  a  very  simple  one.  I  would  tax  every  man's 
property,  as  far  as  practicable,  in  the  very  same  proportion. 
To  adopt  this  as  a  principle  of  action  would  be  a  refinement 
on  the  doctrines  of  free  trade.  It  would  be  proclaiming  to  the 
world  that  government  is  in  no  case  instituted  for  the  purpose 
of  discriminating  between  the  different  classes  of  society, 
according  as  they  are  rich  or  as  they  are  poor ;  and  that 
when  the  public  good  requires  a  certain  amount  of  the  wealth 
produced  to  be  taken  by  the  government,  every  portion  of  it 


POLITICAl.  ECONOMY.  367 

should  be  affected  exactly  in  the  same  way  as  if  the  produc- 
tiveness of  labour  were  proportionally  diminished.  By  such  a 
system  of  taxation  inflexibly  pursued,  much  of  the  jealousy, 
less-  or  more  every  where  existing,  of  the  poor  towards  the 
rich,  would  be  as  effectually  removed  as  by  any  means 
which  could  be  imagined.  Both  classes,  also,  would  be  more 
likely  to  feel  that  their  interests  are  identified ;  seeing  that,  in 
so  far  as  all  contributions  for  the  general  welfare  are  con- 
cerned, the  one  cannot  be  called  upon  to  make  a  sacrifice, 
without  the  other  being  at  the  same  time  called  upon  to 
make  a  proportionate  one.  Indeed,  the  advantages  of  the 
system  in  question,  in  the  view  now  taken  of  it,  seem  to  my 
mind  to  be  so  very  important,  that  I  am  almost  disposed  to 
maintain  that  governments  have  no  right  of  acting  on  any 
other. 

Should  it,  however,  be  still  urged  by  any  one  that  a  man 
owning  property  to  the  value  of  $100  is  less  able  to  bear  the 
loss  of  a  dollar  than  another  worth  $100,000  is  able  to  bear 
the  loss  of  $1000,  and  that  to  tax  them  proportionally  is 
therefore  in  fact  to  do  injustice  to  the  former, — I  shall  remind 
him  of  the  manner  in  which  a  tax  on  property,  however 
imposed,  diffuses  itself  eventually  among  the  different  classes 
of  the  community,  and  shall  express  my  conviction  that  the 
temporary  inconveniences  of  a  uniform  rate  of  taxation  are 
far  overbalanced  by  the  advantages  which  have  been  men- 
tioned. 

And  let  me  not  be  charged,  in  consequence  of  any  thing  I 
have  said,  with  being  more  disposed  than  political  economists 
in  general  are  to  make  the  burthen  of  taxation  press  upon  the 
poor.  By  shewing  that  the  rich  cannot  be  taxed  without  the 
poor  at  the  same  time  suffering  almost  as  much  as  if  they 
themselves  had  been  directly  taxed,  I  have,  on  the  contrary, 
not  only  furnished  an  additional  instance  of  the  manner  in 
which  the  interests  of  the  different  classes  of  society  are 
bound  up  together,  but  I  have  also  furnished  an  argument 


368  THK  PRINCIPLES  OF 

against  all  taxation,  of  the  rich  as  of  the  poor,  excepting  for 
purposes  of  unequivocal  necessity  or  utility. 

Next  to  an  uniform  tax  on  property,  I  would  prefer  such  a 
tax  on  incomes  of  every  descxiption. 

The  former  of  these  taxes  is  the  preferable  one  of  the  two, 
first,  because  the  incomes  of  individuals  are  not  as  susceptible 
of  being  estimated  with  as  near  an  approach  to  accuracy  as 
is  their  property,  or  the  amount  of  what  they  are  at  any  time 
worth.  This  is  sufficiently  evident  in  the  cases  of  those  whose 
incomes  are  derived  from  profits  or  wages,  and  still  more  so 
in  that  of  the  landlords,  whose  incomes,  as  this  term  is  com- 
monly understood,  are  often  a  very  deceptive  indication  of 
their  increase  in  wealth.  Such  increase,  it  has  been  before 
mentioned,  may  frequently  exhibit  itself  by  the  increased 
value  of  the  lands  which  belong  to  them. 

Another  reason  for  preferring  a  tax  on  property  to  a  tax 
on  incomes  is  the  greater  degree  in  which  the  ])oor  will  be 
taxed  in  the  latter  case  than  in  tlie  former;  although  the 
disadvantage  to  them  will  be  in  a  great  measure  only  apparent. 
Why  so,  I  need  not  explain  to  the  reader. 


CHAPTER  XV. 


THE  SAME  SUBJECT  COi\Tl\UED. 


The  ditficulty  of  estimating  with  accuracy  the  property  or 
the  incomes  of  individuals,  together  with  the  desire  on  the 
part  of  governments  to  disguise  as  much  as  possible  from  the 
diflcrent  members  of  society  the  precise  amount  of  the  taxes 
which  each  of  them  is  c;dled  upon  to  piiy,  have  led  to  a  very 


POLITICAL    ECONOMY.  369 

general  reliance,  for  supplying  in  a  considerable  degree  the 
wants  of  the  public  treasury,  on  certain  indirect  modes  of  taxa- 
tion ;  to  which  I  shall  now  direct  the  attention  of  my  readers.  I 
allude  to  the  taxes  which  are  imposed  on  commodities  when  pro- 
duced at  home,  or  when  they  are  imported  from  abroad.  In 
the  former  case  they  are  denominated  an  excise,  and  in  the 
the  latter  they  are  spoken  of  as  customs  or  duties. 

When  the  excise  is  paid  by  the  producer,  as  must  necessa- 
rily be  the  case  in  the  first  instance,  it  is  plain  that  it  can  be 
of  no  importance  in  respect  to  the  ultimate  incidence  of  the 
tax,  whether  he  shall  be  obliged  to  advance  it  immediately 
after  he  shall  have  completed  the  entire  act  of  production, — 
or  at  some  previous  stage  of  that  act,  as  will  commonly  be 
the  case  when,  instead  of  the  commodity  produced,  the  pro- 
cesses or  instruments  of  producing  it  are  the    subjects   of 
taxation.      At    whatever   period   payment   may  have   been 
exacted  from  him   by  the  government,  he  will  expect  it  to  be 
refunded  to  him  by  the  purchaser  of  his  products  ;  for  then 
only  will  he  be  able  to  make  the  ordinary  profits ;  and  unless 
those  profits  are  made  by  him  he  will  transfer  his  capital  to 
other  employments.     The  purchaser  again,  if  his  business  be 
to  retail  those  products,  will,  for  a  like  reason,  expect  his 
advances  to  be,  in  their  turn,  refunded ;  and  so  on,  until  the 
tax  imposed  fall  wholly  on  the  consumer.     It  is,  moreover, 
worthy  of  note,  that  the  consumer  will  not  only  have  to  pay  a 
price  for  what  he  buys,  greater  by  the  amount  of  the  tax  than 
he  would  otherwise  have  had  to  pay  for  it,  but  that  price  will 
be  yet  farther  enhanced  by  the  profits  which  would  have  been 
yielded  to  the  sum  paid  as  a  tax,  had  this  been  invested  pro- 
ductively at  the  time  of  payment. 

These  conclusions  will  likewise  all  hold  good  in  reference 
to  the  duties  imposed  on  importations  from  foreign  countries, 
as  was  fully  explained  in  the  preceding  book.  The  merchants 
cannot  continue  their  business  without  receiving  the  ordinary 


370  THE  PRINCIPLES  OP 

profits ;  and  their  capitals  will  be  accordingly  transferred  to 
other  employments,  until  profits  are  again  equalised. 

It  will  not  appear  singular  that  the  importers  of  commodities 
from  abroad  should  be  here  on  the  same  footing  with  the 
producers  at  home,  if  we  recollect  in  what  the  business  of 
production  really  consists,  and  that  the  merchant  is  a  producer 
in  the  very  same  sense  in  which  the  farmer  or  manufacturer 
is  entitled  to  be  so  designated.  They  are  all  of  them  occupied 
in  adding  utility  to  matter,  not  by  any  act  of  creation, — this  is 
the  prerogative  of  Omnipotence  alone, — but  by  simply  remov- 
ing it  from  one  position  in  space  to  another. 

I  have  noticed  in  another  place  the  singular  doctrine  which 
has  been  maintained  by  some  individuals  of  the  highest  politi- 
cal standing  in  our  own  country,  that,  instead  of  a  duty 
imposed  on  foreign  commodities  imported  being  ultimately 
incident  on  the  consumers  of  those  imports,  it  is  in  reality 
incident  on  the  producers  of  the  commodities  exported  in 
exchange  for  them.  At  present,  it  may  be  proper  to  repeat 
that  the  only  modes  in  which  the  producers  or  capitalists  of 
a  country  can  be  ultimately  affected  by  any  tax  whatever 
upon  the  consumption  of  the  community, — and  the  parties, 
who  hold  to  the  ultimate  incidence  on  the  producers  of  a  tax 
upon  imports,  do  not  deny  the  prior  incidence  of  it  upon  the 
consumers, — are,  first,  by  the  difficulty  of  making  those  trans- 
fers of  capital  and  labour  which  might  be  rendered  necessary 
in  the  course  of  the  changes  resulting  from  the  imposition  of 
the  tax,  and  secondly,  by  any  fall  in  the  rate  of  profits  which 
might  ensue. 

Political  economists  adopt  as  a  principle  that  an  excise 
should  be  levied  as  late  as  possible  in  the  production 
from  first  to  last  of  a  commodity,  or,  what  is  the  same 
thing,  on  the  finished  product,  rather  than  on  the  raw  ma- 
terials, and  the  materials  in  different  stages  of  prepara- 
tion, from  which  it  is  produced.  By  proceeding  in  this  man- 
ner, the  advances    required    to  be  made    by  the   capitalist 


POLITICAL  ECONOMY.  371 

will  not  be  needlessly  augmented,  Where  a  commodity  too, 
on  which  a  tax  has  been  paid,  becomes  successively,  when 
subjected  to  change,  the  materials  of  farther  production, 
not  one  only,  but  several  needless  advances  may  be  required. 
This  last  remark  is,  plainly,  applicable  in  an  equal  degree  to 
commodities  imported  from  abroad,  as  to  those  produced  at 
home.  In  all  these  cases,  indeed,  it  is  no  doubt  true  that  the 
advances  made  will  be  fully  reimbursed,  and  reimbursed  with 
the  due  amount  of  profits.  Nevertheless,  to  be  obliged  to  carry 
on  one's  business,  as  may  not  unfrequently  be  the  case,  with 
a  larger  amount  of  capital  than,  but  for  such  a  tax  as  I  am 
now  speaking  of,  would  be  required  to  carry  it  on  with 
advantage,  is  a  disadvantage,  especially  to  the  smaller  capi- 
talists. 

Where  an  excise  is  levied  on  particular  processes  or  instru- 
ments of  production  in  the  arts,  the  employment  of  all  other 
processes  or  instruments  is  apt  to  be  regarded  as  illegal, 
and  to  be  proscribed  accordingly.  A  check  to  improvement 
will  thus  be  most  improperly  and  most  injudiciously  applied 
by  the  government  itself ;  one  of  whose  chief  objects  should,  on 
the  contrary,  ever  be  to  give  every  encouragement  in  its  power 
to  the  progress  of  improvement. 

Another  evil,  connected  with  every  system  of  excise,  is  the 
inquisitorial  character  of  the  manner  of  collecting  the  tax 
imposed.  The  tax-gatherer  must  necessarily  be  clothed  with 
an  authority  very  susceptible  of  being  abused,  and  therefore 
in  fact  very  often  abused ;  and  his  undesirable  visits  to  the 
manufactory  or  workshop  will  of  itself  be  an  annoyance. 
And  this  evil,  like  every  other  to  which  the  producers  of 
wealth  are  subjected  by  taxation,  will  not  be  confined  to  them- 
selves. They  will,  in  truth,  receive  full  compensation  for  it  in 
an  augmented  rate  of  profits,  of  course  brought  about  by  the 
transfer  of  capital  to  other  employments,  and  the  consequent 
enhancement  of  the  prices  of  the  commodities  which  they 


372  THE  I'RINCIPLKS   OF 

produce ;  that  is,  every  vexation  or  annoyance  inflicted  will 
be  paid  for  by  the  consumers. 

Here  it  may  be  observed  that  care  should  always  be  taken, 
in  the  enacting  either  of  a  system  of  excise  or  of  a  tariff"  of 
duties, — and  this  is  true  whether  these  last  be  intended  as 
revenue  or  protecting  duties, — that  the  tax  imposed  shall  be 
comparatively  lighter  according  to  the  facility  with  which  it 
admits  of  being  evaded.  If  this  consideration  be  neglected, 
or  if  the  taxation  of  any  article  be  exorbitantly  high,  the  con- 
sequence will  inevitably  be  a  disposition,  more  or  less  gene- 
rally extended  among  the  community,  to  evade  the  law,  and 
by  dishonest  artifices  avoid  the  payment  of  the  tax, — not  to 
speak  of  the  more  aggravated  offences  of  the  smuggler. 

Besides  the  inconveniences,  already  mentioned,  which  are 
connected  with  the  taxes  we  are  now  occcupied  in  consider- 
ing, their  collection  costs  more,  generally  speaking,  than  that 
of  an  equal  amount  of  taxes  directly  imposed  would  probably 
do.  And  indeed,  as  was  stated  in  the  beginning  of  the  present 
chapter,  the  principal,  if  not  the  only  reason,  why  governments 
have  so  often  preferred  them  to  all  others,  is  the  possibility, 
on  account  of  their  comparatively  imperceptible  operation,  of 
extracting  from  the  people  in  this  way  a  greater  revenue  than 
in  any  other. 

I  need  scarcely  in  this  place  remind  the  reader  that,  in 
speaking  of  the  ultimate  incidence  of  a  tax  on  the  consumer, 
and  not  at  all  on  the  producer,  it  is  not  intended  to  deny  that 
the  latter  will  be  affected  by  the  diminution  of  the  national 
wealth  which  may  be  consequent  upon  the  unproductive  expen- 
diture of  the  tax.  Such  expenditure  of  it  must  have  precisely 
the  same  effects  as  if  labour  had  become  less  productive.  It 
will  therefore  tend  to  produce  a  fall  of  profits.  What  the 
government  actually  receives  is,  however,  never  equivalent  to 
the  loss  incurred  by  the  tax-payers.  Even  if  we  omit  the 
expenses  of  collection,  this  will  not  be  the  case  when  the  tax 


poLiTicAi.  EooNoair.  373 

imposed  is  a  partial  one.  To  illustrate  my  meaning  by  an 
example :  let  the  only  commodity  taxed  be  tea  on  its  impor- 
tation into  the  country.  Its  price,  as  has  been  shewn,  will 
rise.  Many  persons,  especially  if  the  duty  upon  it  be  conside- 
rable, will  cease  to  consume  it ;  while  those  who  continue  to 
consume  it  will  consume  it  in  less  quantity  than  they  were 
accustomed  to  do.  Now  the  gratification  foregone  by  the 
consumption  of  other  things  instead  of  tea,  which,  but  for  the 
tax  upon  it,  would  have  had  the  preference,  is  an  item,  and  it 
may  be  a  considerable  one,  that  is  manifestly  a  sacrifice 
made  by  the  parties  concerned,  without  any  accession  to  the 
public  revenue ;  a  sacrifice  tending,  also,  to  render  the  fall  in 
the  general  rate  of  profits  greater  than  it  is  necessary  that  it 
should  be.  It  becomes  important  to  diminish  all  sacrifices  of 
the  kind  as  much  as  is  practicable,  by  distributing  the  taxation 
imposed  among  the  various  articles  of  consumption.  And  we 
may  conceive  the  distribution  to  be  so  adjusted  as  not  to  inter- 
fere in  any  degree  with  the  proportions  in  which  those  articles 
are  consumed. 

It  may  be  added  that  the  unequal  taxation  of  the  various 
articles  of  consumption  will  induce  the  same  transfers  of 
capital  and  labour,  as  are  consequent  upon  the  unequal  taxa- 
tion of  the  capital  employed  in  the  different  branches  of 
industry. 


48 


374  THB   PRINCIPLES    OF 


CHAPTER  XVI. 


THE  SAME  SUBJECT  CONTINUED. 


After  having  inquired  into  the  effects  of  taxing  rents,  the 
profits  of  capital,  capital  itself,  and  the  wages  of  labour,  I  pro- 
ceeded to  consider  those  resulting  from  the  system  of  indirect 
taxation,  on  which,  in  modern  times,  so  much  reliance  has  been 
placed  for  supplying  the  wants  of  the  public  treasury.  I  shall, 
next,  examine  in  succession  the  operation  and  ultimate 
incidence  of  certain  taxes  chiefly  of  a  direct  nature,  most  of 
which  have  been  often  imposed  as  collateral  means  for  the 
same  purpose. 

To  begin,  let  a  tax  be  imposed  upon  the  land  of  a  country  ; 
and  say  on  all  land  alike,  whether  cultivated  or  uncultivated, 
— whether  employed  for  any  useful  purpose  or  not.  In  what 
respects  will  the  effects  be  different  from  what  they  were  shewn 
to  be  in  the  case  of  a  tax  on  the  rent  of  land  ?  I  observe,  in 
the  first  place,  that  if  the  value  of  land  were  determined  exclu- 
sively by  the  present  income  derived  from  it,  the  portion  of  it 
which  is  in  a  state  of  nature,  being  suffered  to  remain  in  that 
state  simply  because  it  cannot  yield  the  ordinary  profits  to  the 
capital  applied  to  cultivate  it,  would  have  no  value  whatever. 
When  the  tax  is  imposed  upon  it,  its  ownership  will  for  this 
reason  be  abandoned  to  the  government ;  to  which  it  can  be 
of  no  more  service  than  it  was  to  its  former  owner.  Indeed, 
there  is  no  reason  why  the  owner,  even  before  the  imposition 
of  the  tax,  should  not  have  been  quite  as  willing  to  aban- 
don all  claim  to  the  land,  as  to  hold  it.  But  the  present 
value  of  land  is  determined,  in  a  degree,  by  what  its  value  at 
B.  future  period  is  expected  to  be.  Very  possibly,  therefore,  it 
might  bear  to  have  a  tax  imposed  upon  it  of  a  certain  amount, 


POLITICAL  ECOXOMT.  375 

though  it  be  not  sufficiently  fertile  or  favourably  situated  with 
respect  to  a  market  to  admit  of  its  being  profitably  cultivated. 
Such  a  tax  as  this  will  evidently  be  paid  at  first  by  the  pro- 
prietor of  the  land :  and  it  must  be  also  ultimately  paid  by 
him,  because  there  is  no  one  to  whom  he  will  be  able  to 
transfer  it. 

The  rent  of  land,  employing  the  word  rent  as  men  com- 
monly do,  may  be  the  subject  of  taxation.  This  kind  of  rent 
consists  of  two  elements,  to  wit,  rent  properly  or  technically 
so  called,  and  the  profits  of  the  capital  invested  on  the  land  by 
its  owner.  If  the  tax  imposed  be  less  than  or  equal  to  the 
former  of  these  two  elements,  it  will  in  fact  be  a  tax  on  that 
element  alone  :  if  the  tax  be  greater,  it  will,  in  part,  become  a 
tax  on  the  profits  of  the  capital  invested  ;  and  the  consequen- 
ces will  be  a  transfer  of  this  capital  as  far  as  it  admits  of 
being  transferred,  together  with  the  abandonment  of  the  land 
as  in  the  case  just  before  considered. 

Similar  consequences  will  result  when  the  gross,  instead 
of  the  net  produce,  of  the  land,  is  taxed,  as  in  the  case  of 
tithes, — and  will  result,  indeed,  from  every  supposable  tax  on 
the  land. 

A  repeal  of  the  taxes,  of  which  I  have  been  treating  in  the 
present  chapter,  will,  of  course,  be  followed  by  consequences 
the  opposite  to  those  which  ensued  when  the  taxes  were  origi- 
nally imposed.  To  give  only  a  single  illustration,  suppose  the 
tithes  paid  in  Great  Britain  for  the  support  of  the  estabUshed 
church  to  be  abolished.  So  long  as  the  existing  leases  con- 
tinue, the  profits  of  the  farmers  or  tenants  will  be  above  the 
ordinary  rate ;  and  so  long  will  they  enjoy  the  whole  benefit 
conferred  by  the  abolition  of  the  tithes.  But  when  their 
leases  shall  have  expired,  that  benefit  will  necessarily  pass  from 
them  to  the  landlords ;  it  being  always  in  the  power  of  the 
latter  to  exact  from  the  farmers,  in  every  instance,  as  much 
rent  as  will    leave   them  the  ordinary  rate  of  agricultural 


376  THK  PKINCIPLES  OF 

profits,  and  no  more.     The  whole  benefit  would,  at  least,  be 
thus  transferred  to  the  landlords,  were  it  not  that  a  certain 
portion  of  land  can  now  be  cultivated  with  advantage,  which 
was  before  incapable  of  yielding  the  ordinary  profits  to  the 
capital  invested  upon  it,  and  was  incapable  of  doing  so  on 
account  of  the  necessity  of  paying  tithe.     The  cultivation  of 
additional  land  will  prevent  rents  from  rising  as  much  as  they 
would  otherwise  do  ;  as  they  did  not  fall  (on  account  of  the 
necessity  just  mentioned)  as  much  as  they  would  otherwise 
have  done,  when  the  same  land  was  obliged,  by  the  imposi- 
tion upon  it  of  tithe,  to  be  thrown  out  of  cultivation.     And  the 
diminution  of  the  exchangeable  value  of  agricultural  products 
which  will  have  taken  place, — a  diminution  of  value,  without 
the  occurrence  of  which  rents  would,  indeed,  have  risen  to 
the  full  extent  at  first  mentioned, — will  confer  an  advantage 
to  a  certain  amount  upon  the  community,  at  the  expense,  if 
the  expression  may  be  here  used,  of  the  landlords.     Besides 
this  advantage,  which  is  no  doubt  smaller,  and,  very  probably, 
much  smaller,  than  that  derived  by  the  landlords  from  the 
augmentation  of  their   rents,  a  peculiar   advantage  would 
result,  from  the  repeal  of  tithes,  to  the  parties  by  whom  it  is 
in  the  first  instance  paid,  in  their  being  relieved  from  the 
vexations  unavoidably  connected  with  the  collecting  of  it ; 
aggravated,  moreover,  as  those  vexations  are,  by  an  impres- 
sion of  tithes  being  paid,  as  well  ultimately,  as  in  the  first 
instance,  by  those  from  whom  it  is  levied  by  the  government. 
The  extraordinary  expenses,  too,  of  collecting  so  vexatious 
and  therefore  so  obnoxious  a  tax,  which  have  often  to  be 
incurred,  would  be  saved  to  the  public  by  its  repeal.     And  I 
may  add    that  we  shall   find  an   additional  reason   for  its 
repeal,  in  the  injury  inflicted  on  the  cause  of  religion  itself  by 
rendering  the  clergy,  through  whose  instrumentality  and  for 
whose  especial  benefit,  the  tax  in  question  was  imposed,  in 
a  certain  degree  the  objects  of  dislike  or  aversion  to  the 


POLITICAL  ECONOMY.  377 

poorer  classes  of  the  people ; — not  to  mention  the  purely 
political  considerations  that  ought  to  prompt  to  the  adoption 
of  such  a  measure. 

The  question  as  to  the  most  expedient  mode  of  providing 
for  the  clergy  is,  however,  foreign  from  the  subject  of  the 
present  treatise ;  and  I  am,  therefore,  not  called  upon  to  give 
my  reasons  why,  in  common  with  the  universally  expressed 
opinion  in  the  United  States,  I  hold  to  the  voluntary  system. 
Men  may  differ  toto  calo  concerning  this  matter,  as  they  may 
do  concerning  the  form  of  government  best  fitted  for  a  parti- 
cular nation,  and  yet  be  ready  to  subscribe  to  all  the  essential 
doctrines  of  political  economy. 

But  whether,  on  the  abolition  of  tithes,  other  taxes  of  an 
equivalent  amount  shall,  or  shall  not,  be  substituted  for  them 
in  order  to  provide  for  the  clergy,  it  will  be  proper  to  impose 
such  a  tax  on  the  land  as  may,  in  its  effect  upon  rents,  coun- 
teract that  rise  of  them  which  would  otherwise  ensue. 
Unless  something  of  this  kind  be  done,  a  considerable  part  of 
what  was  before  the  support  of  the  clergy  will  have  been 
taken  from  them,  and  simply  handed  over  to  the  proprietors 
of  the  land.  Should  the  diminished  wants  of  the  govern- 
ment not  require  the  revenue  which  is  to  be  derived  from  the 
suggested  tax,  it  might,  notwithstanding,  be  the  most  expedient 
course  to  impose  this  ;  at  the  same  time  repealing  one  or  more 
others. 


37S  THE    PEINCIPLES  OF 


CHAPTER  XVII. 


THE  SAME  SUBJECT  CONTINUED. 


I  NEED  not  dwell  at  any  length  on  the  several  modes  of 
taxation  which  are  yet  to  be  mentioned,  as  they  must  neces- 
sarily partake  more  or  less  of  those  already  considered. 
They  may  be  mentioned,  also,  in  almost  any  order. 

Let  a  tax  be  imposed  upon  the  sale  of  property,  or  upon 
contracts  for  the  transfer  of  property  from  one  individual  to 
another  at  a  future  day.  These  taxes  have  this  disadvantage, 
that  they  prevent  in  a  certain  degree  the  most  profitable 
distribution  of  the  national  wealth.  If  we  suppose  the  price  of 
a  certain  article  to  be  at  such  a  rate  as  to  induce  its  possessor 
to  offer  it  for  sale,  but  that  a  tax  of  the  kind  just  mentioned 
is  imposed  before  any  sale  shall  have  been  actually  effected, 
the  inference  is  plain  that  the  article  in  question  would  be 
•withdrawn  from  the  market,  unless  it  can  be  sold  at  an 
advance  above  its  former  price  equal  to  the  amount  of  the 
tax.  Now  the  individual  who  might  have  been  willing  to 
purchase  it  before,  being  thus  obliged,  in  the  event  of  his 
becoming  a  purchaser,  to  refund  the  tax  exacted  from  the 
seller  by  the  government,  may  very  well  refuse  to  purchase. 
And  the  article  will  have  to  remain  in  the  possession  of  its 
present  owner  ;  although,  if  transferred  to  some  other  indivi- 
dual, it  might,  very  probably,  have  been  employed  more 
productively,  that  is  with  a  greater  profit,  and,  of  course, 
more  advantageously  to  the  whole  community.  Should  the 
tax  be  exacted  from  the  purchaser,  the  conclusion  to  be  draw^n 
is  obviously  the  same. 

The  customary  mode  of  deriving  a  revenue  from  the 
transfers  of  property, — a  method  recommended  by  the  facility 
and  very  inconsiderable  expense  of  collection, — is  by  requiring 


POLITICAL  ECONOMY.  379 

the  evidences  of  all  contracts  and  sales  to  be  recorded  on 
stamped  paper,  issued  by  authority  of  the  government,  and 
having  a  different  value  according  to  the  amount  oi'  property 
to  be  transferred. 

A  tax  bearing  some  analogy  to  the  foregoing,  because  the 
circulation  of  commodities  is  impeded  by  it,  is  one  imposed 
on  their  transportation  from  place  to  place.  Such,  for 
example,  are  the  tolls  v^^hich  are  levied  upon  carriages  on 
roads,  and  upon  boats  on  canals.  They  can  be  shewn  to  be 
ultimately  incident,  like  every  other  tax  upon  the  producers, 
on  those  who  consume  the  commodities  transported,  and  are 
therefore  no  more  liable  to  objection  than  are  the  taxes  in 
general  that  are  paid  by  the  consumers. 

Travelling,  as  well  as  the  transportation  of  commodities 
from  one  part  of  a  country  to  another,  is  a  subject  of  taxa- 
tion ;  and  a  moment's  reflection  will  suiiice  to  satisfy  the 
reader  that,  whether  imposed  in  the  first  instance  on  the 
traveller,  or  on  the  proprietor  of  the  stage-coach  or  other  con- 
veyance in  which  he  performs  his  journey,  the  whole  burthen 
of  the  tax  will,  in  fact,  be  borne  by  the  former.  The  advan- 
tage gained,  or  gratification  received  by  him,  will  evidently, 
in  this  case  as  in  every  other,  have  to  be  paid  for  by  the 
consumer. 

Both  the  descriptions  of  tax  which  have  been  last  consi- 
dered are  recommended  by  the  facility  of  collecting  them ; 
and  there  would  be  no  ground  for  objecting  to  them  under  any 
circumstances,  so  long  as  they  were  not  higher  than  a  fair 
equivalent  for  the  use  of  the  communication  by  land  or  water 
along  which  passengers  or  goods  are  conveyed.  This  is  a 
self-evident  proposition.  The  only  difficulty  here  is, — as  to 
what  is  to  be  regarded  as  a  fair  equivalent  for  the  benefit 
conferred.  It  may,  indeed,  be  stated  to  be  such  a  tax  or  toll  as, 
after  paying  for  keeping  the  road,  or  whatever  the  communi- 
cation may  be,  in  repair,  will  enable  the  government  to  make 
the  ordinary  profits  on  the  capital  expended  in  its  construe- 


380  THE  PRINCIPLES  OP 

tion.  But  how  is  this  point  to  be  determined  ?  If  the  business 
of  road  making  were  open  to  every  member  of  the  commu- 
nity to  engage  in  it,  there  would  be  no  need  for  us  to  concern 
ourselves  on  the  subject.  Competition  would  not  fail  to  keep 
the  rates  of  toll  at  their  proper  level,  on  the  roads  constructed 
by  the  government  as  on  every  other.  A  state  of  things  like 
this  exists  in  no  country,  and  it  may  be  regarded  as  one 
altogether  out  of  the  question.  The  making  of  roads,  and  of 
canals  too,  being  every  where  monopolised, — I  use  this  word 
in  no  bad  sense, — by  the  government,  or  by  parties  authorised 
for  the  purpose  by  the  government,  more  than  the  proper  rate 
of  toll  may,  it  is  plain,  be  exacted.  Of  every  such  pay- 
ment beyond  the  value  received  there  would  be  good  reason  to 
complain,  unless  other  taxes  were  at  the  same  time  imposed, 
bearing  more  particularly  upon  the  classes  of  society  not 
affected  by  the  tolls  of  which  I  have  been  speaking.  In  a 
country  however,  like  our  own,  where  the  commodities  con- 
sumed have  to  be  conveyed  to  very  unequal  distances,  and 
where  those  who  travel  are  of  almost  all  descriptions  of 
persons,  it  would  be  not  a  little  difficult  to  discover  any  such 
compensatory  faxes.  This  difficulty,  together  with  the 
acknowledged  principle  of  avoiding  as  much  as  is  practicable 
the  taxing  of  particular  classes  of  the  community,  is,  in  gene- 
ral, a  sufficient  security  against  the  excess  of  taxation  of  which 
mention  has  been  made. 

Remarks  similar  to  the  above  may  be  made  in  reference  to 
the  postage  of  letters.  The  government  of  a  country  should 
never  look  to  the  post  office  for  a  revenue.  It  ought  to  rest 
satisfied  if  the  expenses  of  the  institution  are  borne  by  those 
who  are  directly  benefited.  I  might,  perhaps,  with  propriety, 
go  even  farther,  and  maintain  the  expediency,  in  so  far  as 
newspapers  and  periodicals  are  concerned,  of  making  some 
sacrifice  to  promote  by  their  circulation  the  diffusion  of 
knowledge,  political  and  literary,  among  the  great  body  of  a 
people. 


POIITICAt  KCONOMT.  381 

Governments  have  not  always  contented  themselves  with 
taxing  the  transfer  of  property  from  one  to  another  among 
the  living,  but  have  sometimes  interfered  between  the  living 
and  the  dead,  by  the  imposition  of  a  tax  upon  legacies,  or 
upon  the  property  generally  of  those  who  die.  A  tax  of  this 
kind,  there  can  scarcely  be  a  doubt,  is,  of  all  possible  taxes, 
that  which  is  paid  with  the  least  reluctance.  The  deceased 
owner  of  what  is  taken  was  permitted  to  keep  quiet  possession 
of  it  to  the  last  moment  of  his  life  :  and  the  heir  or  legatee 
will  more  readily  pardon  the  act  of  the  government  in  appro- 
priating to  its  own  use  a  part  of  his  predecessor's  wealth,  at 
the  time  when  the  remainder  is  transferred  to  himself  than 
at  any  subsequent  peri  d.  The  disadvantage  which  may 
be  imputed  to  this  manner  of  raising  a  revenue  is,  that 
the  productive  consumption  of  the  country  is  affected  by  it  in 
a  greater  degree  than  the  unproductive.  We  may  infer  this 
from  the  circumstance  of  what  is  received  from  another  at  a 
period  not  previously  determined,  but  depending  for  its  occur- 
rence on  a  contingency,  being  regarded  by  the  recipient  as  so 
much  clear  gain.  He  will  be  indisposed  to  economise  his 
unproductive  consumption  in  order  farther  to  augment  his 
capita] ;  and  the  result  will  be  a  greater  retardation  of  a 
nation's  advance  in  wealth  than  if  a  tax  had  been  avowedly 
imposed  on  the  profits  of  capital,  or  even  on  capital  itself. 

A  tax  was,  a  few  years  ago,  imposed  in  Pennsylvania  on 
collateral  inheritances  ;  that  is,  on  the  property  of  those  per- 
sons who  die  without  leaving  any  children  behind  them.  One 
advantage  of  such  a  tax  is,  obviously,  the  same  in  kind, 
though  somewhat  enhanced  in  degree,  with  that  which  was 
stated  to  subsist  in  the  preceding  case.  The  property  inherited 
from  more  remote  relations  will  have  been  regarded,  before 
the  possession  of  it  is  actually  obtained,  less  in  the  light  of 
property  belonging  to  the  heir,  the  enjoyment  of  which  is  only 
postponed  for  a  time,  than  if  it  had  descended  from  his  imme- 
diate ancestor.     He  will,  on  this  account,  acquiesce  still  more 

49 


382  THE  PRINCIPLES  OF 

readily  in  a  part  being  taken  from  him  for  public  purposes,  at 
the  time  of  his  becoming  possessed  of  it.  There  is  also 
another  advantage  which  may  be  ascribed  to  a  tax  on  colla- 
teral inheritances  when  compared  with  one  upon  inheritances 
descending  from  parent  to  child,  to  wit,  that  the  children  who, 
having  had  their  own  parents  to  provide  for  them,  have 
besides  had  property  left  to  them  of  the  former  description, 
will  be  relatively  better  able  to  sustain  the  weight  of  taxation. 
I  need  scarcely  say  that  the  disadvantages  of  taxing  the 
different  kinds  of  inheritances  will  correspond  very  much 
with  their  comparative  advantages.  If,  indeed,  the  notion  of 
some  of  the  advocates  of  the  tax  under  consideration  had 
any  foundation  to  rest  upon, — the  notion,  I  mean,  that  it 
would  operate  as  an  encouragement  to  matrimony,  and  thus 
tend  to  increase  the  population  of  the  country, — it  would  be 
accompanied  by  a  disadvantage  of  a  peculiar  nature.  To 
contribute  to  such  a  result  by  the  very  measure  adopted  to 
take  from  the  national  wealth,  or,  what  is  the  same  thing, 
from  the  means  of  support  of  the  community,  would  be  alto- 
gether preposterous.  It  would  be  the  decreeing  the  degrada- 
tion to  a  certain  extent,  in  place  of  the  improvement,  of  the 
condition  of  the  people.  But  I  have  no  idea  of  any  one 
having  been  stimulated,  by  the  collateral  inheritance  bill  of 
Pennsylvania,  to  marry,  with  the  purpose  in  view  of  evading, 
on  his  death,  the  payment  of  the  tax  imposed ;  and  the  bill, 
in  my  opinion,  was  therefore,  in  this  respect,  perfectly  harm- 
less. Nor  do  I  think  it  probable  that,  amounting  as  it  did  to  only 
a  small  per  centage  on  the  value  of  the  inheritance  taxed,  the 
imposition  of  the  tax  in  question  has  led  to  many  removals 
of  unmarried  persons  from  the  state.  Such  removals  from 
it,  implying  too  the  withdrawal  of  capital,  would  have  been 
necessarily  injurious  to  it.  The  tax  may  be  conceived  to  be 
so  high  as  in  fact  to  produce  a  considerable  amount  of 
injury. 

And  I  may  be  permitted  to  remark  here  that,  after  what 


POLITICAL    KCONOMY.  383 

has  been  delivered  in  the  second  book  of  this  treatise  on  the 
principle  of  population  and  the  consequences  flowing  from  it, 
the  reader  must  perceive  the  absurdity  of  every  measure, 
financial  or  otherwise,  having  for  its  object  to  increase  the 
number  of  marriages.  The  governments  by  whom  they  have 
been  enacted  have  been  deplorably  ignorant  of  the  subject  on 
which  they  undertook  to  legislate  ;  and  they  were,  especially, 
unaware  that  the  difficulty  was  not  to  multiply  the  numbers 
of  a  people,  but  to  provide  for  them  adequate  means  of 
support. 


CHAPTER  XVIII. 


THE  SAME   SUBJECT  CONTINUED. 


To  tax  judicial  proceedings  is,  obviously,  to  render  the 
administration  of  justice  unnecessarily  expensive :  and  worse 
than  this ;  because  in  proportion  as  the  administration  of 
justice  is  rendered  more  expensive  to  litigants,  it  is  converted 
into  the  administration  of  injustice  to  the  poorer  classes  of 
society.  When  injured  in  their  property  or  otherwise,  if  the 
expense  of  a  law  suit  be  so  great  that  they  cannot  afford  to 
incur  it,  there  is  nothing  left  for  them  but  to  submit,  as 
quietly  as  they  may,  to  the  injury  inflicted. 

A  poll  tax,  or  tax,  to  an  equal  amount,  upon  every  member 
of  a  community,  or  upon  every  member  of  it  who  has  arrived 
at  a  certain  age,  is  Hable,  in  the  same  or  a  greater  degree,  to 
the  objection  which  has  been  made  to  a  tax  on  wages, 
namely,  that  more  in  proportion  is  taken  by  it  from  the 
incomes  of  the  poor  than  from  those  of  the  rich. 

But  it  would  be  needless  for  me  to  notice  all  the  varieties 


384  THE  PRINCIPLES  OK 

of  possible  taxation.  The  principles  which  have  been 
explained,  and  the  details  already  given,  will  enable  the 
intelligent  reader  to  trace  for  himself  the  advantages  or  dis- 
advantages connected  with  any  case  that  may  be  presented 
to  him.  I  shall,  accordingly,  specify  only  two  cases  more, — 
a  tax  on  exports  to  foreign  countries,  and  a  tax  on  dwelling- 
houses,  or  say  on  the  rent  of  dwelling-houses. 

The  former  tax  might,  perhaps,  have  been  treated  most 
appropriately  immediately  after  that  upon  imports  from 
abroad ;  but  it  is  not  easy  to  arrange  in  a  manner  wholly 
unexceptionable  the  discussion  of  the  different  topics  embraced 
in  so  comprehensive  a  subject  as  taxation ;  and  I  shall  be 
content  if  my  arrangement  shall  have  been  such  as  is  con- 
sistent with  a  perspicuous  and  logical  exposition  of  my 
opinions.  To  proceed  however,  I  remark  that  the  merchants, 
who  must  necessarily  pay  the  tax  upon  exports  in  the  first 
instance,  will  no  longer  ship  to  foreign  countries  the  same 
quantity  of  the  articles  taxed ;  and  their  prices  abroad  will, 
in  consequence,  rise.  This  rise  will  continue  until  prices  shall 
become  high  enough  to  enable  the  merchants  to  repay  them- 
selves the  amount  of  the  taxes  advanced  by  them  ;  when  they 
will  once  more  make  the  ordinary  profits  on  their  respective 
capitals.  In  this  state  of  things,  the  tax  will  be  incident  on 
the  foreign  consumers.  The  articles  taxed  will  not  be  con- 
sumed abroad  as  extensively  as  before ;  and  the  quantity  of 
them  produced  at  home  will  therefore  be  also  diminished.  A 
transfer  of  capital  must  on  this  account  ensue,  bearing  a  close 
analogy  to  that  which  was  shewn  to  take  place  when  the 
exports  of  a  country  are  diminished  by  the  imposition  of 
duties  on  imported  commodities.  Exports  may  be  taxed  so 
highly  as  very  much  to  reduce  the  quantity  of  them  con- 
sumed, or  even  to  prevent  their  consumption  altogether ;  just 
as  the  tax  upon  imports  may  be  so  high  as  to  produce  the  like 
effects.  While  in  the  latter  case  the  price  of  an  article  may 
have  risen  so  much  that  a  similar  article  may  be  produced  at 


POLITICAL  ECONOMY.  385 

home  at  the  same  or  a  less  price,  or  people  may,  rather  than 
purchase  it  at  the  present  rate,  contrive  to  do  without  it ;  in 
the  former  case,  the  price  of  an  article  may  have  risen  so 
much  that  either  a  similar  article  may  be  produced  abroad  at 
the  same  or  a  less  price,  or  people  may  contrive  to  dispense 
with  the  use  of  it  altogether.  The  analogy  between  the  two 
cases  is,  in  short,  complete,  excepting  only  the  circumstance 
of  the  tax  imposed  being,  in  the  one,  paid  by  the  foreign,  and, 
in  the  other,  by  the  domestic  consumers. 

Recourse  has  been  very  seldom  had  to  taxes  upon  exports ; 
and,  in  the  United  States,  there  is  a  provision  in  the  constitu- 
tion of  the  general  government,  prohibitory  of  the  imposition 
of  any  such  taxes.  Why  has  this  been  the  case,  and  why 
this  prohibition  ?  For  if  a  tax  upon  exports  is  ultimately 
incident  upon  the  consumers  abroad,  and  a  tax  upon  imports 
upon  the  consumers  at  home, — while  the  effects  moreover, 
which  are  produced  by  the  two  taxes  respectively,  are  in 
other  respects  so  analogous  as  has  been  stated, — it  would 
seem  that  the  action  of  governments  in  the  matter  has  been 
entirely  wrong,  and  that  they  ought  clearly  to  give  a  prefer- 
ence to  a  tax  upon  exports  over  one  of  imports.  In  our  own 
country,  too,  the  collection  of  the  tax  upon  exports  would,  all 
other  circumstances  being  the  same,  be  more  easy  and  more 
certain,  from  the  more  uniform  nature  of  the  commodities 
sent  abroad,  when  compared  with  those  received  in  return 
for  them,  as  well  as  from  the  greater  value  in  a  given  bulk 
they  possess,  generally  speaking,  and  by  possessing  which 
they  cannot  so  readily  evade  the  payment  of  the  tax  im- 
posed. 

The  most  influential  reason  which  can  be  assigned,  why 
the  exports  of  a  country  have  been  protected  so  extensively 
from  taxation,  is  unquestionably  to  be  found  in  the  erroneous 
notions  that  have  been  less  or  more  extensively  prevalent  with 
respect  to  the  true  nature  of  national  wealth.  When  it  was 
supposed  that  a  country  was  wealthy  and  prosperous  exactly 


386  THE  PRINCIPLES  OF 

according  to  the  quantity  of  money  in  circulation,  and  when 
the  possibility  of  maintaining  always  a  permanent  excess  of 
exports  above  imports  was  every  where  adopted  as  a  maxim, 
which  excess  was,  besides,  to  be  invariably  paid  for  in  the 
precious  metals,  it  is  not  to  be  wondered  at  that  the  imposi- 
tion by  any  government  of  a  tax  upon  exports,  unless  for 
some  very  peculiar  reason,  should  have  been  regarded  by  its 
subjects,  as  well  as  by  itself,  as  an  absurdity,  or  even  worse, 
— as  a  sort  of  treason  against  the  state. 

Another  reason  for  not  taxing  exports,  rather  than  imports, 
has  been,  that  the  parties  who  are  the  immediate  sufferers 
would,  in  all  probability,  complain  much  more  in  the  former 
case  than  in  the  latter ;  partly,  perhaps,  because  a  commodity 
which  is  to  be  exported,  being  in  the  actual  possession  of  its 
owner,  and  capable  of  being  disposed  of  by  him  in  the  country 
itself  where  he  lives  without  the  payment  into  the  public 
treasury  of  any  portion  of  what  he  receives  for  it,  seems  to 
his  imagination  to  be  more  emphatically  his  property  than 
is  another  commodity  which  is  imported  from  abroad, 
and  which  can  scarcely  be  said  to  have  come  into  his 
possession,  or  to  be  his,  until  the  duty  upon  the  importation 
of  it  shall  first  have  been  paid ; — but  especially,  because  the 
different  classes  of  producers  whose  interests  are  affected 
disadvantageously,  and  who  will  be  obliged  to  transfer  their 
capitals  from  their  existing  employments  to  others,  are  more 
distinctly  traceable  in  the  case  of  a  tax  upon  exports,  than 
they  are  in  that  of  a  tax  upon  imports. 

But  the  question  may  be  asked, — whether,  consistently  with 
the  principles  of  political  economy,  as  they  have  been  deduced 
in  the  present  treatise,  it  would  not  be  preferable  to  impose 
duties  upon  commodities  exported  rather  than  upon  those 
which  are  imported  1  Whether,  in  other  words,  it  would  not 
be  better  to  levy  a  tax  upon  the  foreign,  than  upon  the 
domestic  consumer  ?  The  answer  is  plain,  that  it  would  be 
so,  provided  only  that  other  countries  would  submit  to  such  a 


POLITICAL  ECONOMY.  387 

State  of  things  without  retaliating  ;  and  which  it  may  be  taken 
for  granted  that  they  are  not  at  all  likely  to  do.  If  every 
government  were  to  derive  its  revenue  from  the  taxing  of 
exports,  and  these  were  taxed  everywhere  in  a  similar  pro- 
portion to  their  value,  no  advantage  could  possibly  result  to 
a  country  at  the  expense  of  any  other.  And  if  the  system  of 
taxation  was  not  thus  uniform,  it  appears  to  me  that  it  would, 
far  more  frequently  even  than  the  existing  tariff  systems,  tend 
to  generate  hostile  feelings  among  nations,  and  to  embroil 
them  with  each  other.  Where,  indeed,  any  one  nation  was 
found  to  be  obstinately  adhering  to  the  antiquated  notions 
concerning  the  balance  of  exports  and  imports,  or,  to  use  the 
more  technical  language  of  former  statesmen,  of  the  balance 
of  trade,  they  would  deserve  to  be  punished  for  shutting  their 
eyes  to  the  progress  of  knowledge  which  is  going  on 
all  around  them,  by  being  obliged,  in  consequence  of  the 
imposition  by  other  nations  of  a  tax  on  exports,  to  pay 
tribute  to  them  for  whatever  foreign  products  they  consume. 

In  relation  to  a  tax  on  dwelling-houses,  which  is  the  only 
tax  I  propose  yet  to  remark  upon,  I  may  mention  that  it  is  pre- 
cisely of  the  same  nature,  however  it  may  be  imposed,  with 
some  of  the  taxes  already  considered.  When  imposed  upon  the 
rent,  as  this  term  is  commonly  understood,  paid  by  the  tenants 
to  the  landlords,  it  is  analogous  in  its  effects  and  ultimate 
incidence  to  a  tax  imposed  on  the  gross  product  of  the  land. 
It  may  not,  however,  be  superfluous  to  trace  those  effects  here 
as  they  successively  occur,  on  the  amount  required  being 
exacted  in  the  first  instance  from  the  landlords ;  furnishing,  as 
in  this  case  they  do,  a  striking  illustration  of  a  transfer  of  the 
burthen  of  taxation  from  one  class  of  persons  to  another. 

Let  a  tax,  then,  of  ten  per  cent,  be  imposed  on  house-rent. 
It  must,  in  the  first  place,  be  evident  that,  during  the  whole 
period  of  every  existing  lease  of  a  house,  the  landlord  can  find 
no  remedy  for  what  he  has  thus  to  pay.  If  his  rent  was  before 
^400,  it  will  now  be  equivalent,  in  so  far  as  he  is  concerned, 


388  THE    PRINCIPLES    OF 

to  the  sum  of  only  $360.  But  when  the  period  for  renewing 
the  contract  between  landlord  and  tenant  shall  again  come 
round,  will  the  former  be  able  to  get  rid  of  the  tax  by  in  any 
way  inducing  the  latter  to  pay  him  a  higher  rent, — to  pay  him 
$440  instead  of  $400.  Certainly  not,  so  long  as  the  supply  of 
houses  and  the  demand  for  them  shall  remain  the  same.  The 
landlord  got  as  much  rent  from  his  tenant  before  as  he  could; 
and  there  is  no  reason  why  he  should  now  get  more.  He  will, 
however,  be  making  less  than  the  ordinary  profits  upon  his 
capital :  a  check  will  thus  be  given  to  the  building  of  new 
houses ;  the  supply  of  houses  will  be  gradually  diminished, 
while  the  demand  for  them  continues  unaltered  ;  and  house- 
rent  will  consequently  be  on  the  rise.  Families  which  before 
occupied  houses  of  a  certain  description  will  be  content  with 
those  that  are  inferior :  others  which  already  lived  in  the 
smaller  or  inferior  sort  will  be  obliged  to  rest  satisfied  with 
merely  occupying  apartments  in  a  house.  This  deterioration 
of  the  condition  of  the  tenants  will  only  cease  when  the  ordi- 
nary profits  are  once  more  received  by  the  landlords ;  that  is, 
when  the  whole  of  the  tax  imposed  has  become  incident  upon 
the  tenants.  Building  will,  of  course,  be  then  resumed,  and 
the  supply,  in  this  case  as  in  every  other,  be  accommodated 
to  the  demand. 


POLITICAL    ECOKOMY.  3S9 


CHAPTER  XIX. 

THK  GENERAL  PRINCIPLES  OF  TAXATION. 

What,  now,  are  the  general  principles  which  should  serve 
as  a  guide  to  governments  in  the  enactment  of  a  system  of 
taxation  ? 

I  answer,  jfirst,  that  the  amount  of  taxation  should  be  as 
small  as  is  possible,  consistent  with  a  due  regard  to  the 
interests  for  the  protection  and  promotion  of  which  govern- 
ments are  instituted.  This  remark  may  seem  to  be  a  very 
obvious  and  common-place  one,  even  to  those  persons  who 
are  the  least  versed  in  political  economy.  My  object,  in 
nevertheless  formally  stating  it,  is  to  impress  upon  the  reader's 
mind,  as  forcibly  as  1  can,  what  is  a  productive  and  what  an 
unproductive  public  expenditure ;  agreeably  to  the  meaning 
annexed  to  these  terms  in  the  present  treatise.  The  writers 
who  adopt  the  distinction  between  the  productive  and  the 
unproductive  labourers  are  led  by  it  to  designate  all  the  indi- 
viduals employed  and  paid  by  the  government,  in  the  different 
departments  of  the  administration,  executive,  judicial,  military, 
6z-c.,  as  well  as  the  government  itself,  as  unproductive, — and 
the  whole  of  the  public  expenditure  likewise,  without  excep- 
tion, as  unproductive.  It  will  be  recollected,  on  the  other 
hand,  that  the  various  classes  just  referred  to  are  considered 
by  the  author  as  all  and  equally  entitled  to  be  styled  produc- 
tive ;  and  that,  in  his  view,  no  portion  of  their  labour  or 
services  ought  at  any  time  to  be  regarded  as  unproductive, 
unless  where  more  persons  are  employed  than  are  necessary  for 
accomplishing  the  object  proposed,  or  where  that  object  is  an 
improper  one.  The  salaries  or  wages  too,  which  the  govern- 
ment pays  for  the  labour  thus  styled  productive,  if  they  be  no 

50 


390  THE  PRINCIPLES    OF 

more  than  a  fair  compensation  for  it,  are  necessarily  a  pro- 
ductive expenditure ;  as  is  manifestly  the  case  with  every 
other  expenditure  on  the  part  of  the  government  for  some 
legitimate  object.  Hence  the  greater  portion  of  the  public 
expenditure,  and  even  the  whole  of  it,  may  be  conceived  to  be 
of  a  productive  kind.  If  the  last  were  in  fact  the  case,  so  far 
from  taxation  having  any  tendency  to  diminish  the  existing 
wealth  of  a  country,  or  to  retard  the  progress  of  national 
wealth,  its  effects  will  be  exactly  the  reverse,  in  as  much  as 
what  it  takes  from  the  people  would,  had  it  been  left  with  them, 
have  scarcely  been  at  all  productively  consumed.  And  the 
inference  cannot  be  resisted  that,  with  an  economical  admin- 
istration of  the  government, — economical,  I  mean,  in  relation 
to  the  proper  wants  and  duties  of  government, — taxation  is 
no  evil.  I  will  add,  in  order  to  guard  against  any  possible 
misapprehension  of  my  meaning  on  a  point  of  so  much  impor- 
tance and  delicacy  as  this,  that,  when  taxation  is  asserted 
under  the  circumstances  supposed  to  be  no  evil,  it  is  taken  for 
granted  that  there  is  nothing  in  the  manner  of  its  apportion- 
ment among  the  community  calculated  to  cause  any  unneces- 
sary vexation,  or  to  press  unequally  upon  particular  classes, 
especially  if  these  be  the  poorer  classes.  Let  it  be  observed, 
moreover,  that  I  have  not  asserted  the  prohahility  of  a  govern- 
ment being  administered  with  the  strictest  attention  to 
economy.  This  has,  indeed,  been  very  seldom  the  case. 
Generally  speaking,  a  government  is  tempted  to  expend  pro- 
fusely and  unnecessarily,  exactly  in  proportion  to  its  ability 
of  extracting  the  means  for  so  doing  from  the  pockets  of  its 
subjects. 

To  illustrate  my  meaning  of  the  distinction  between  a  pro- 
ductive and  an  unproductive  public  expenditure  by  the 
example  of  a  standing  army,  I  shall  assume  that,  under  the 
circumstances  in  which  the  United  States  are  placed  in  respect 
to  the  nations  with  which  they  are  likely  to  come  into  collision, 
and  in  respect  to  the  Indian  tribes  on  their  frontiers  or  within 


POLITICAL  ECONOMY.  391 

their  borders,  an  army  of  20,000  men  is  adequate  for  pro- 
viding against  any  emergency  that  may  occur  in  the  midst  of 
peace,  or  for  forming  the  nucleus  of  a  still  larger  army  in  time 
of  war.  Now  to  maintain  such  an  army  would  be  a  produc- 
tive expenditure  ;  on  the  supposition,  however,  of  this  expen- 
diture not  being  at  an  extravagant  rate.  And  for  the  govern- 
ment to  insist  on  maintaining  an  army  of  only  10,000  men,  or 
to  undertake  to  maintain  one  of  40,000,  would  be,  in  both  cases 
alike,  to  cause  the  national  wealth  to  be  consumed  less 
productively  than  it  ought  to  be.  The  capital  which  might 
have  been  applied  to  the  maintenance  of  the  20,000  men 
with  the  proper  returns,  will  not  yield  proportional  advantages 
if  it  be  either  diminished  one  half,  or  if  it  be  doubled  in 
amount.  A  diminution  of  wealth  would  result,  of  a  nature 
precisely  analogous  to  the  loss  of  wealth  that  would  be 
incurred,  were  the  government  of  a  country  to  regulate  the 
investments  of  capital  in  such  a  manner  as  to  cause  to  be 
produced  twice  as  many  or  half  as  many  hats  and  shoes,  as 
would  be  produced  should  the  hatters  and  shoemakers  be 
guided  by  no  other  consideration  than  the  relative  wants  of  the 
community. 

It  is  no  argument  to  prove  the  unproductive  character  of 
the  soldiers  of  an  army  to  say  that  if  the  men  composing  it 
were  discharged  they  could  and  would  be  engaged  in 
some  productive  employment,  and  that  the  same  wages 
which  maintained  them  before  could  still  be  applied  to  their 
maintenance  while  thus  productively  employed.  I  say  this 
is  no  argument,  because  the  like  may  be  asserted*in  reference 
to  every  other  class  of  the  communiy ;  the  criterion  of  the 
unproductiveness  or  productiveness  of  the  labour  employed 
being  always  the  same,  to  wit, — is  there,  or  is  there  not, 
more  labour  employed  in  any  occupation  than  the  interests  of 
the  community  require  ? 

If  the  expenditure  of  the  government  was  always  regulated 
with  a  single  eye  to  the  real  interests  of  the  governed,  I  may 


392  THE  PRINCIPLES  OP 

observe  that  all  that  part  of  my  reasoning  in  the  foregoing 
chapters  which  was  founded  on  the  implied  supposition  of  the 
national  wealth  being  diminished,  or  its  progress  retarded  by 
taxation,  would  have  no  foundation  to  rest  on  ;  and  the 
consequences  deduced  w'ould  be  of  no  effect.  Their  effect 
too,  in  reality,  will  always  be  proportional  to  the  unproductive 
expenditure  of  the  government. 

The  next  general  principle  in  reference  to  the  subject  of 
taxation  I  shall  mention  is,  that,  other  circumstances  being  the 
same,  it  is  desirable  the  taxes  imposed  should  be  so  distributed 
as  to  give  occasion  to  as  few  transfers  of  capital  as  possible. 
This  principle  has  been  frequently  referred  to  in  what  pre- 
cedes ;  and  it  is,  therefore,  already  familiar  to  the  reader. 
I  shall,  accordingly,  merely  remind  him  that,  when  no  trans- 
fers of  capital  shall  ensue  on  account  of  taxation,  the  various 
products  of  industry  will  be  consumed  in  the  very  same  pro- 
portions as  before,  and  the  community  will  not,  besides  the 
proper  evils  of  taxation,  suffer  any  of  those  collateral  evils 
which  result  from  the  individuals  composing  it  being  obliged 
to  consume  what,  but  for  the  taxes  imposed,  they  would  not 
have  chosen  to  consume. 

Another  principle,  closely  connected  with  the  preceding, 
is,  ccBtei^is  paribus,  that  an  old  tax  is  preferable  to  a  new  one. 
To  substitute  the  latter  in  place  of  the  former  is  at  the  same 
time  enacting  that,  on  the  one  hand,  more  than  the  ordinary 
profits,  and,  on  the  other,  less  than  the  ordinary  profits 
shall  be  made  by  the  capitalists  respectively  employed 
in  producing  the  commodities  taxed.  Although  here,  at  first, 
what  is  one  man's  loss  is  another  man's  gain,  yet  there  can 
be  no  doubt,  as  I  have  before  .explained,  that  the  loss  is 
uncompensated  by  the  gain,  if  we  estimate  all  the  circum- 
stances of  advantage  or  of  disadvantage  concerned.  In 
taking  from  one  man  and  giving  to  another,  the  inconvenience 
or  distress  which  the  former  suffers  is  never,  in  the  scale  of 
national  happiness,  or  what  is  the  same  thing  as  wealth  has 


I'OLITICAL    ECONOMT.  393 

been  defined,  in  the  scale  of  national  wealth,  equivalent  merely 
to  the  augmented  command  possessed  by  the  latter  over  the 
necessaries  and  luxuries  of  life.  But  again,  in  the  transfers  of 
capital  consequent  upon  the  loss  of  which  I  speak,  a  certain 
portion  of  capital  is  always  abandoned  ;  and  although,  by  the 
abandoning  of  this,  no  additional  loss  is  incurred,  but  rather 
(as  I  before  mentioned  in  an  analogous  case)  prevented,  yet 
some  idea  of  the  actual  loss,  the  reader  will  not  fail  to  perceive, 
may  be  formed  from  it. 

A  tax  which  will  have  the  efiect  of  lowering  the  profits 
received  in  a  branch  of  industry  where  the  circulating  pre- 
dominates over  the  fixed  portion  of  the  capital  invested,  is 
preferable  to  one  which  will  diminish  the  profits  of  capital 
where  this  is  in  a  greater  degree  fixed  than  circulating.  The 
truth  of  this  proposition  follows  necessarily  from  the  greater 
facility,  generally  speaking,  of  transferring  circulating  than 
fixed  capital. 

Taxes  should  be  imposed  rather  upon  a  commodity  which 
is  prepared  for  final  consumption  than  upon  one  which  is  in 
any  degree  the  material  on  which  labour  is  still  farther 
exerted ;  rather  also  upon  such  objects  as  cannot  easily,  on 
account  of  their  possessing  a  great  value  in  proportion  to 
their  bulk,  or  for  any  other  reason,  be  subtracted  from  the 
operation  of  the  taxes ;  and  they  should  be  imposed  with  a 
view  to  readiness  and  economy  of  collection.  After  what  has 
been  stated,  in  the  preceding  chapters  concerning  taxation, 
the  reader  w  ill  not  need  any  proof  of  these  several  propositions. 
I  need  not  here  repeat  my  reasons  for  not  imposing  a 
greater  tax  on  one  species  of  income  than  on  another,  or  for 
preferring  a  direct  tax  on  property  to  any  other  tax. 

Nor  is  it  necessary  for  me  to  say  any  thing  farther  concern- 
ing the  inexpediency  and  injustice  of  governments  undertaking 
to  travel  out  of  their  proper  province,  and  to  violate  the  rights 
of  property,  as  they  do  when  they  sit  in  judgment  on  the 
distribution  of    the   national   wealth,   determining    at   their 


304  THE  PRINCIPLES  OF 

pleasure  how  much  of  it  shall  belong  to  the  rich,  and  how 
much  to  the  poor ;  for  this  is  what  is  in  reality  done  by  them 
when  they  take  from  the  former,  by  means  of  taxation,  any 
more  than  their  proportional  share. 

In  opposition  to  the  opinions,  which,  so  far  as  I  know,  are 
universally  prevalent,  concerning  the  peculiar  respect  d  ue  by 
a  government  to  the  capital  of  a  country,  and  concerning  the 
propriety  therefore,  in  every  system  of  taxation,  of  taxing  in 
preference  the  unproductive,  rather  than  the  productive  con- 
sumption of  the  community,  I  shall  remark  that,  in  my  view, 
governments  ought  never  to  meddle,  in  any  manner  what- 
ever, with  the  proportions  in  which  the  wealth  produced  is 
destined  by  its  owners  to  constitute  their  present  or  their 
future  consumption;  and  that  they  ought  to  endeavour  so  to 
distribute  the  taxes  imposed  by  them  as  not  to  interfere  with 
the  existing  habits  of  the  community  as  regards  saving  or 
spending.  Indeed,  if  governments  are  entitled  to  interfere 
with  those  habits  when  legislating  for  the  purpose  of  raising 
a  revenue,  why  should  they  not  interfere  directly  with  those 
habits  by  the  enactment  of  sumptuary  laws,  now  every 
where  condemned  as  an  improper  invasion  of  the  rights  of 
individuals  1 

To  avoid  all  possible  misconception  of  my  meaning  when 
laying  down  general  rules  for  the  imposing  of  taxes,  I  may 
state  what  is  sufficiently  obvious  to  every  reflecting  mind, 
— that  those  rules  will  often  in  practice  be  found  to  be  incon- 
sistent with  each  other.  As  an  illustration  of  this,  I  may 
adduce  the  instance  of  the  same  ad  valorem  duty  on  the 
importation  from  abroad  of  tea  and  cofiee,  and  of  jewelry, 
being  out  of  the  question,  unless  when  the  duty  is  a  very  low 
one  ;  on  account  of  the  last  article  possessing  comparatively  a 
great  value  in  a  given  bulk,  and  being,  in  consequence  of  this, 
easily  made  to  evade  the  payment  of  the  duty,  or,  in  other 
words,  being  easily  smuggled  into  the  country.  We  may 
also  conclude,  if  the  rate  of  taxation  be  high,  against  taxing  the 


POLITICAL  ECONOMY.  395 

importation  of  tea'  and  coffee  in  a  less  degree  than  the  importa- 
tion of  jewelry,  ahhough  the  former  articles,  in  the  actual  con- 
dition of  society,  partake  largely  of  the  character  of  a  necessary 
of  life,  while  the  latter  is  manifestly  a  mere  luxury.  Other  illus- 
trations cannot  fail  to  present  themselves  to  the  reader  on  a 
little  reflection.  And  in  the  case  of  taxation,  as  in  every  other 
where  the  rules  of  action  deduced  are  found  occasionally  to 
clash  with  each  other,  all  that  can  be  done  is  to  endeavour  to 
reconcile  them  in  practice  as  far  as  we  can  possibly  contrive 
to  do  so. 

Before  leaving  the  subject  of  taxation,  it  may  be 
proper  for  me  to  mention, — what  is,  indeed,  implied  in  the 
statements  which  have  been  already  made, — that,  just  in  pro- 
portion as  a  greater  amount  of  the  whole  produce  of  labour  is 
taken  to  itself  by  the  government,  will  the  general  cost  of 
production  be  enhanced.  The  effect  will  be  the  same  as  if 
labour  had  become  less  productive.  Wealth  and  population 
will  increase  less  rapidly  than  before ;  or  they  may  even  be 
made  to  decrease.  And  the  cost  of  producing  a  particular 
commodity,  and  consequently  its  price,  may  have  been  so 
much  enhanced,  as  to  diminish  exceedingly  the  quantity  of  it 
consumed,  and  therefore  produced.  This  remark,  too,  leads 
me  to  make  another  of  considerable  practical  importance,  to 
wit,  that  nothing  is  more  common  than  for  the  government 
to  miscalculate  egi'cgiously  the  amount  to  be  yielded  by  a 
new  tax,  or  by  the  augmenting  of  an  old  one,  especially 
where  the  article  taxed  is  a  luxury,  and  not  a  necessary  of 
life,  with  the  great  body  of  the  people.  By  doubling  the 
tax  imposed,  the  public  treasury,  instead  of  receiving  twice 
as  much,  is  not  unfrequently  a  loser,  on  account  of  the 
diminution  of  consumption  which  resuhs.  The  loss,  how^ever, 
is  often  in  part  only  apparent ;  since  the  parties  who  cease 
to  consume,  or  who  consume  in  less  quantity  than  before,  the 
article  on  which  the  tax  has  been  augmented,  will  necessarily 
consume   a  greater  quantity    of    other  articles,    and    in  all 


39G  THE  PKINCIPLES  OF 

probability  a  greater  quantity  of  some  of  those  which  are  the 
subjects  of  taxation  ;  and  the  revenue  consequently,  derived 
from  these,  will  be  larger  than  it  was  heretofore. 

When  taxes,  again,  are  lowered,  it  sometimes  occurs  that 
the  public  revenue  is  not  only  undiminished,  but  even  becomes 
augmented  in  amount ;  the  more  extended  consumption  of  the 
articles  on  which  they  had  been  imposed,  and  from  which  they 
have  been  partially  removed,  more  than  compensating  for  the 
less  amount  paid  by  a  given  quantity  of  what  is  consumed, 
and  for  the  loss  which  the  treasury  suffers  by  the  contempo- 
raneous consumption  of  other  articles  which  pay  taxes  having 
undergone  a  diminution. 

And  I  shall  conclude  the  present  chapter  with  the  general 
remark  that  the  changes  which  are  consequent  upon  a  repeal 
of  taxes  are  precisely  the  contrary  to  those  which  ensue  from 
the  imposing  of  them,  and  that,  after  what  has  already  been 
said  concerning  taxation,  the  reader  may  be  safely  left  to 
trace  them  for  himself.  I  proceed,  accordingly,  to  the  next 
topic  in  the  natural  order  of  discussion ;  that,  namely,  of  the 
effects  resulting  from  the  incurring,  and  the  paying,  of  a 
national  debt. 


CHAPTER  XX. 

\ 

OF  A  NATIONAL  DEBT.  k 

Men  are  so  much  the  creatures  of  habit,  that  while  they 
are  often  content  to  pay  a  high  amount  of  taxation  which  they 
have  from  year  to  year  continually  paid,  they  are  apt  to  com- 
plain loudly  of  every  new  tax  which  is  imposed  upon  them, 
as  in  a  peculiar  degree  oppressive.    Hence  it  has  been  the 


POLITICAL  ECONOMY.  397 

policy  of  governments  to  add  only  gradually  to  the  taxes  of  a 
country.  To  enable  them  to  do  so,  they  have  sometimes  had 
recourse  to  the  accumulation  of  a  treasure  in  a  time  of  peace, 
as  a  provision  against  the  exigencies  of  a  state  of  war.  That 
this  provision  should  seldom  have  been  found  adequate  for  the 
purpose  intended  is  not  to  be  wondered  at,  when  we  bear  in 
mind  the  warlike  propensities  of  mankind,  and  the  very  slight 
pretexts  which,  from  the  earliest  to  the  present  day,  have 
afforded  occasion  for  national  hostilities.  In  modern  times, 
governments  have  resorted,  in  consequence  of  this,  to  public 
loans;  more  particularly  in  countries  where  the  government, 
from  the  manner  in  which  it  is  constituted,  is  possessed  of  a 
certain  degree  of  credit.  The  facility  of  borrowing  has  how- 
ever, as  in  the  case  of  a  surplus  treasure,  almost  invariably  led 
to  an  extravagant  expenditure  of  the  public  money,  and  to  the 
engaging  in  useless  and  even  frivolous  wars  with  other  coun- 
tries ;  which,  in  their  turn,  have  led  to  the  continual  extension 
of  the  borrowing  or  funding  system ;  the  United  States  of  North 
America  furnishing  a  singular  instance  of  the  entire  payment 
of  a  considerable  national  debt. 

At  first  view,  it  might  perhaps  appear  to  be  hardly  consis- 
tent with  established  principles  that  a  nation,  which,  instead 
of  paying  its  debts,  goes  on  for  a  considerable  period  augment- 
ing them,  and  augmenting  them  too  until  they  am_ount  to  a 
sum  so  enormous  as  to  take  from  the  most  sanguine  minds 
almost,  or  altogether,  all  hope  of  their  ever  being  paid,  should 
notwithstanding  maintain  its  credit,  and  continue,  whenever 
it  has  occasion  for  so  doing,  to  borrow  yet  more  on  reasona- 
ble terms.  Yet  such  has  been  the  fact  in  Great  Britain, 
and  that  in  despite  of  the  most  sinister  predictions  of  her 
enemies,  as  well  as  of  the  more  desponding  of  her  own  people, 
uttered  repeatedly  at  different  stages  of  the  progress  of  her 
debt.  And  why  this  should  have  been  so,  is  not  a  matter  of 
very  difficult  explanation.  There  are  in  every  country  a 
number  of  individuals  who,  if  they  were  assured  of  the  conti- 

51 


398  THE    PEINCIPLES  OF 

nued  and  punctual  payment  of  the  interest  on  the  money 
loaned  by  them,  would  never  be  disposed  to  call  for  payment 
of  their  principal,  or  to  complain  of  its  being  withheld  from 
them.  As  the  debt  is,  besides,  made  transferable  from  one 
individual  to  another,  the  national  ci'editor  needs  be  at  no  loss 
to  realise  any  portion  of  it  which  he  may  hold,  by  the  transfer 
or  sale  of  it  to  some  one  else.  The  government,  again,  may 
not  content  itself  with  regularly  paying  the  interest  on  the 
debt  out  of  the  funds  generally  received  into  the  public  trea- 
sury :  it  may  pledge,  for  this  purpose,  the  proceeds  of  certain 
taxes  already  imposed  ;  or  rather,  on  the  contracting  of  any 
new  loan,  it  may  impose  additional  taxes,  the  proceeds  of 
which  are  to  be  thus  appropriated.  It  may  do  yet  more  than 
this.  At  the  same  time  that  a  provision  is  made  for  paying 
the  interest  of  the  national  debt  in  perpetuity,  if  this  should  be 
required,  the  means  may  be  procured,  by  another  addition  to 
the  taxes  imposed,  for  gradually  extinguishing  the  debt  itself. 
The  process  of  extinction,  however  slow,  is  evidently  a  sure 
one,  whatever  may  be  the  amount  of  the  debt  incurred ;  that  is, 
provided  the  government  does  not  go  on  borrowing  at  the  very 
time  that  it  is  paying  oft'  what  it  already  owes,  and  borrowing 
too,  as  was  for  a  series  of  years  the  case  in  Great  Britain, 
to  a  greater  amount  than  it  paid.  Notwithstanding  this,  the 
British  government  was  able  to  maintain  its  credit,  so  as  to 
borrow  continually  on  comparatively  advantageous  terms, 
on  account  of  the  punctual  payment  of  the  interest  contracted 
for ;  and  of  the  confidence  produced  in  the  public  mind,  by  the 
system  of  simultaneously  augmenting  the  taxes  to  an  amount 
more  than  adequate  to  meet  such  payment,  that  the  country 
had  not  as  yet  attained  to  the  limit  of  its  resources,  and  that 
a  national  bankruptcy  was  therefore  wholly  out  of  the  ques- 
tion, unless  the  institutions  of  the  country  should  be  all  reck- 
lessly swept  away  by  a  revolution,  in  the  worst  sense  of  this 
term. 

But  I  have  expressed  myself  rather  too  strongly.      The 


POLITICAL  ECONOMY.  399 

circumstances  just  mentioned  were  not  tlie  only  ones  which 
enabled  the  government  of  Great  Britain  to  maintain  the 
pubhc  credit  unimpaired.  There  was  an  ilkision  extensively, 
and  indeed  universally,  diffused  concerning  the  nature  and 
operation  of  the  sinking  fund,  or  sum  annually  set  apart  for 
the  extino-uishment  of  the  debt,  which  contributed  to  that 
result.  I  allude  to  the  notion  that  the  fund  in  question  was 
really  operating  to  produce  the  effects  for  which  it  was 
created  ;  although,  more  money  being  annually  borrowed  than 
was  paid  to  the  existing  creditors,  the  national  debt  was  all 
the  time  rapidly  increasing.  In  such  a  state  of  things,  the 
sinking  fund,  however  nominally  the  product  of  taxation,  was 
in  truth  altogether  a  loan ;  and  its  management  consisted  in 
the  simple  and  very  superfluous  occupation  of  borrowing  with 
one  hand  in  order  to  pay  with  the  other. 

In  what  respects  is  a  national  debt  an  evil  ?  In  replying  to 
to  this  question,  there  has  been  quite  as  much  vague  and 
unmeaning  declamation  as  perhaps  respecting  any  other  point 
of  interest  in  our  science ;  and  the  evil  is  often  very  much 
exaggerated,  while  it  is  sometimes  entirely  misconceived,  and 
supposed  to  be  of  a  very  different  nature  from  what  it  is  in 
reality.  The  evil  will  be  perceived  by  anyone  of  my  readers, 
who  has  made  himself  acquainted  with  the  principles  which 
have  been  explained  in  the  first  book  of  this  treatise,  to  be 
dependent  for  its  amount  on  the  degree  in  which  the  money 
borrowed  has  been  unproductively  expended.  So  far  as  it  was 
necessarily  or  properly  expended,  its  expenditure  was  a 
national  good,  and  not  a  national  loss.  And  the  debt,  instead 
of  having  been  an  evil,  was  a  blessing ;  just  as  a  debt  of  an 
individual  is  to  be  regarded  in  that  light  which  is  productive 
to  him  of  a  gain,  greater  in  amount  than  the  inconvenience 
suffered  by  him  from  the  necessity  of  paying  the  interest  of 
the  money  borrowed. 

The  circumstance,  it  is  true,  of  a  government  being  able  to 
borrow  the  means  of  going  to  war  on  any  emergency,  or  of 


400  THE  PRINCIPLES  OF 

engaging  in  any  expensive  undertaking,  has  repeatedly  led  to 
a  lavish  and  useless  expenditure  of  those  means.  In  so  far  as 
this  last  may  have  taken  place  in  any  country,  the  debt  will 
have  been  any  thing  but  a  blessing. 

But  to  look  upon  the  vv^hole  of  a  debt  as  indicative  of  an 
unproductive  consumption  of  an  equal  value  having  been 
incurred,  is  an  errour  of  no  ordinary  magnitude ;  an  errour, 
too,  not  to  be  sustained  by  assuming  the  ground  that,  if  what 
was  borrowed  by  the  government  had  not  been  expended  in 
providing  for  the  national  defence,  or  for  other  purposes  of 
public  utility,  but  had  been  left  in  the  possession  of  the  people 
to  be  by  them  productively  expended,  population  and  wealth 
would  have  advanced  more  rapidly.  The  very  same  thing 
might,  indeed,  be  said  in  reference  to  any  other  productive 
expenditure.  For  example,  w^ere  the  human  species  so  con- 
stituted as  to  require  no  food  for  the  sustaining  of  life,  how 
much  more  rapidly  would  not  wealth  of  every  other  descrip- 
tion, and  therefore  population,  admit  of  being  augmented  in  a 
given  time ! 

To  make  payment  of  a  national  debt  will  not  remedy  the 
expenditure  unproductively  of  any  portion  of  the  money 
borrowed.  If  the  public  creditors  or  fund-holders  reside 
within  the  country  itself,  such  payment  will  be  equivalent 
simply  to  a  transfer  of  the  amount  of  the  debt  from  the 
pockets  of  the  community  in  general  to  those  of  the  creditors  ; 
the  community,  on  the  other  hand,  being  relieved,  in  time  to 
come,  from  the  payment  of  the  interest.  But  to  possess  a 
given  portion  of  wealth  and  to  pay  the  interest  upon  it,  is  here 
manifestly  the  same  thing  in  reference  to  the  country  regarded 
as  a  whole,  as  to  part  with  that  wealth  and  to  be  relieved  from 
paying  the  interest. 

In  the  next  place,  let  the  debt  be  due  to  parties  residing  in 
foreign  countries.  Then  if  the  rate  of  the  interest  to  be  paid 
be  equal  to  the  ordinary  rate  of  the  interest  of  money  in  the 
country  itself,  it  is  plain  that  the  payment  of  the  debt  would 


POLITICAL  ECONOMr.  401 

amount  to  a  sacrifice  by  the  debtor-country  of  all  the  advan- 
tages to  be  derived  from  the  possession  of  the  wealth  thus 
parted  with,  beyond  the  ordinary  profits  it  is  capable  of 
yielding.  I  say  beyond  the  ordinary  profits  it  is  capable  of 
yielding ;  because,  even  though  all  the  wealth  in  question  be 
not  employed  as  capital,  a  given  portion  of  what  is  so  em- 
ployed is  of  no  more  exchangeable  value,  and  therefore  of  no 
more  advantage  to  the  country,  than  is  an  equal  portion  of 
it  that  is  consumed  unproductively.  And  if  the  interest  of  the 
debt  be  less  than  the  ordinary  rate  of  interest  or  of  profits  in 
the  country  itself,  as  it  in  all  probabiUty  will  be  when  the 
national  creditors  are  resident  abroad,  my  readers  will  easily 
understand  how  the  payment  of  the  debt  might  be,  to  a  certain 
extent,  a  public  loss  instead  of  a  public  gain. 

But  by  the  payment  of  the  principal  of  a  national  debt, 
the  community  will,  under  any  circumstances,  be  saved  the 
expense  of  collecting  the  taxes  Vv^hich  are  requisite  for  pro- 
viding for  the  interest;  and  be  saved  all  the  other  inconveniences 
or  annoyances  less  or  more  connected  with  the  collection  of 
those  taxes.  In  addition  to  these  savings,  I  know  of  no  other 
advantages  which  can  be  derived  from  the  paying  off  of  a 
national  debt,  excepting  only  the  moral  eflfect  of  such  pay- 
ment in  confirming  the  public  credit,  and  in  the  impression  it 
is  adapted  to  produce  on  other  nations  of  the  magnitude  of 
the  national  resources. 


403  THB  PRINCIPLES  OF 


CONCLUSION. 


In  bringing  the  present  treatise  to  a  close,  it  may  be  proper 
for  me  to  make  a  few  remarks  on  some  of  the  most  impor- 
tant principles  which  I  have  aimed  at  estabUshing. 

I  shall  begin  with  once  more  calling  the  attention  of 
the  reader  to  my  application  of  the  term  capital  as 
well  to  immaterial  as  to  material  products.  Of  the  prac- 
ticability of  such  an  application  of  it,  I  may  now  assume 
that  he  can  have  no  doubt.  As  to  its  expediency,  I 
cannot  but  think  that,  if  he  will  recur  to  the  numerous  discus- 
sions which  occupy  the  preceding  pages,  he  will  perceive 
the  analogy  between  material  and  immaterial  products  to  be 
so  very  striking,  that  there  is  scarcely  any  important  conclu- 
sion to  which  I  have  arrived  respecting  the  one  of  these 
classes,  which  cannot  be  equally  predicated  respecting  the 
other.  To  enable  himself  to  perceive  this  analogy  in  the 
clearest  manner,  all  that  is  necessary  is  for  him  to  re-examine 
any  portion  of  what  I  have  written,  and  which  he  may  consi- 
der to  be  vitiated  in  any  degree  by  immaterial  wealth  having 
been  comprehended  in  the  definition  of  capital, — and  while  he 
re-examines  it,  to  do  so  on  the  supposition  of  capital  having  a 
reference  to  matter  alone.  He  will  discover  how  very  rarely 
it  will  be  necessary  to  alter  a  single  word,  in  order  to  render 
the  language  employed  consistent  with  itself.  In  my,  opinion 
too,  he  cannot  fail  to  look  upon  the  generaUsation  of  the 
term   in   question,   which  I  have  ventured   to   propose,    as 


POLITICAL  ECONOMY.  403 

perfectly  justifiable ;  and  not  merely  as  perfectly  justifiable, 
but  also,  like  every  other  successful  generalisation  in  science, 
as  in  a  high  degree  expedient. 

To  repeat  a  remark  which  was  made  by  me  before,  the 
definitions  of  wealth  and  of  capital  should  always  be  in 
keeping  with  each  other.  If  the  former  have  a  reference 
only  to  matter,  it  will  be  proper  to  confine  the  latter  likewise 
to  matter  only :  if  the  former  be  made  to  comprehend  imma- 
terial as  well  as  material  products,  so  should  the  latter. 
Moreover,  by  adopting  the  more  comprehensive  definitions 
of  these  terms,  we  are  enabled  to  rid  ourselves  of  the  distinc- 
tion, so  liable  to  a  wrongful  application,  between  productive 
and  unproductive  labour ;  no  labour  being  then  to  be  stigma- 
tised as  unproductive,  excepting  when  a  greater  amount  of  it  is 
employed  in  producing  a  commodity,  than  is  required  by  the 
natural  relation  in  respect  to  it  of  supply  and  demand.  I  may 
add  that  in  applying  the  term  wealth  to  the  products  of  the 
intellect,  we  shall  be  enlarging  the  province  of  political 
economy,  from  a  concern  with  our  mere  bodily  wants,  to  the 
consideration  of  all  the  various  circumstances  which  are 
capable  of  contributing  to  our  prosperity  or  happiness ;  and 
be  thus  conferring  upon  it  a  dignity  which  it  would  be  other- 
wise far  from  possessing. 

In  the  next  place,  I  may  request  of  the  reader  to  call  to 
mind  the  frequent,  and  indeed  continual  use,  that  I  have  made 
of  the  theories  of  rent  and  of  population,  in  the  discussion  of 
the  most  interesting  practical  problems  which  our  science 
presents  to  us  for  solution.  I  hope  too  that,  in  doing  this,  he 
will  agree  with  me  in  the  opinion  that  to  deny  the  truth  of 
those  theories,  or  even  to  give  to  them  a  secondary  place 
among  the  doctrines  of  political  economy,  is  to  throw  the 
science  into  utter  confusion,  and  indeed  to  take  from  it  all 
pretensions  to  the  rank  of  a  science. 

A  proper  understanding,  too,  of  the  principle  of  population 


404  TUB   PRINCIPLES    OF 

discloses  to  us  the  moral  relations  of  political  economy ;  rela- 
tions which  confer  upon  it  a  peculiar  dignity,  and,  I  do  not 
hesitate  to  say,  elevate  it  to  the  highest  rank  among  the 
branches  of  human  knowledge.  The  great  truth  has  thus 
been  impressed  upon  us  in  the  clearest  manner,  that  the  conr.- 
mand  of  the  great  body  of  every  community  over  the  neces- 
saries and  luxuries  of  life  is  determined  in  a  much  greater 
degree  by  moral  than  by  physical  causes ;  and  that  its 
enlargement  depends,  therefore,  in  a  much  greater  degree 
on  the  general  diffusion  of  education,  of  morals,  and  of  reli- 
gion, among  the  people,  than  upon  the  particular  system 
of  legislation  that  may  be  adopted  by  the  government. 

Political  economy  is,  nevertheless,  very  far  from  leading  us 
to  conclude  that  the  form  of  government  or  system  of  legis- 
lation to  be  adopted  is  a  matter  of  only  slight  importance.  . 
While,  on  the  one  hand,  it  checks  the  presumption  of  the 
statesman  in  substituting  his  own  views,  and  not  seldom  his 
own  very  superficial  views  of  expediency,  for  the  wisdom  of 
nature,  it  points  out  to  him  distinctly  the  cases  where  he  can 
interfere  with  things  as  they  are  with  advantage  to  his  fellow- 
men,  and  how  rapidly  he  shall  do  so.  Hence  it  is  calculated, 
when  its  doctrines  shall  be  more  generally  diffused  than  they 
are  at  present,  to  become  the  most  efficient  reformer  of  existing 
abuses  ;  for,  where  ev^ery  step  that  is  taken  in  the  progress  of 
improvement  is  taken  in  the  right  direction  and  at  the  proper 
time,  no  reactions  will  have  to  be  apprehended.  Hence  too, 
the  general  diffusion  of  the  doctrines  of  political  economy 
will  co-operate  powerfully  with  the  necessary  effect  of  the 
continually  extending  influence  of  Christianity,  in  restraining, 
on  the  one  hand,  the  tendencies  to  revolutionary  measures, 
which  are  in  our  own  day  so  widely  prevalent  among  the 
more  civiUsed  nations  of  the  earth  ;  and  inducing,  on  the 
other,  a  reverence  for  the  laws,  and  a  readier  acquiescence 
in  their  dominion.     Such  will  be  the  results  produced  on  the 


POLITICAL  ECONOMY.  405 

minds  alike  of  all  classes  of  the  community.  The  more 
privileged  and  wealthy  classes,  instead  of  being  disposed,  on 
the  principles  of  an  absurd  and  rigid  conservatism,  to  resist, 
at  the  outset,  every  proposal  for  a  reform  in  the  existing 
state  of  things,  will  become  anxious  for  reforms  to  be  intro- 
duced, fast  enough  to  prevent  any  supposed  necessity  or  pre- 
text for  revolutionary  action  on  the  part  of  the  multitude. 
And  the  people  in  general,  now  made  aware  that  violent 
measures  will  often,  by  the  reactions  to  which  they  are  liable, 
retard  the  attainment  by  them  of  the  objects  which  they  have 
in  view,  will  more  readily  consent  to  bear  the  evils  of  which 
they  complain  for  a  somewhat  longer  period,  rather  than 
plunge  themselves,  as  well  as  ev^ery  other  class  of  the  com- 
munity, at  once  into  all  the  miseries,  or  even  horrors,  of  a 
revolution. 

But  it  is  not  only  by  their  tendency  to  operate  on  the  minds 
of  men  in  the  manner  which  has  just  been  described,  that  a 
ditiusion  of  the  doctrines  of  political  economy  is  an  object  in 
the  highest  degree  desirable,  and  that  the  revolutionary  temper 
of  the  times  can  be  allayed.  By  inculcating  upon  the  rich 
and  the  poor  that  their  interests,  properly  understood,  are  not 
in  opposition  to  each  other,  as  these  parties,  and  especially  the 
latter,  are  now  so  apt  to  imagine,  and  that  to  preserve  the 
rights  of  property  inviolate,  never  taking  from  the  rich  for 
the  mere  purpose  of  giving  to  the  poor,  is  the  most  effectual 
means  of  permanently  benefiting  both,  the  political  economist 
contributes  effectually  to  remove  the  grounds  of  controversy 
between  them,  and  to  secure  the  internal  tranquillity  of  society. 
And  again,  he  contributes  to  secure  this  tranquillity,  by  point- 
ing out  distinctly  how  much  of  the  good  and  of  the  evil, 
which  is  the  lot  of  mankind,  flows  from  causes  wholly  inde- 
pendent of  the  constitution  of  the  government  under  which 
they  live,  or  of  the  manner  in  which  it  is  administered.  They 
are  led,  in  consequence,  not  to  attribute  every  evil  endured  by 

52 


400  THE   PRINCIPLES  OF 

them,  and  not  readily  traceable  to  other  causes,  to  the  mis- 
conduct of  their  rulers,  or  to  that  constitution  of  government; 
nor  to  expect  any  sudden  and  extraordinary  advantage  to 
result  from  mere  political  change. 

And  while  the  science  of  political  economy  is  adapted  to 
shed  a  kindly  and  a  peaceful  influence  at  home  upon  the  mutual 
relations  of  the  different  classes  of  society,  it  is  equally 
adapted  to  exercise  a  beneficial  influence  on  the  mutual  rela- 
tions of  the  different  countries  of  the  civilised  world.  It  does 
this  by  putting  the  seal  of  its  condemnation  upon  various 
barbarous  practices,  which  are  still  tolerated  by  the  law  or 
the  forbearance  of  nations;  but  especially  by  its  promulga- 
tion in  unequivocal  terms  of  the  great  truth,  that  the  pros- 
perity of  any  one  country  is  conducive  to  that  of  every  other 
with  which  it  has  intercourse ;  and  of  this  other  great  truth, 
that  an  entire  and  uninterrupted  freedom  from  restrictions  of 
every  description  would  be  the  most  desirable  state  of  things, 
in  respect  to  commerce,  among  all  the  nations  of  the  earth, — 
a  state  of  things  in  which  each  nation  would  be  able  to  derive 
the  fullest  advantage  from  the  advances  in  wealth  and  pros- 
perity of  every  other,  and  in  which  the  advantageous  division 
of  labour  could  be  carried  to  the  greatest  extent. 

Finally,  I  may  observe  that  the  whole  spirit  of  political 
economy,  like  that  of  Christianity  itself,  is  a  spirit  of  peace  and 
good-will  to  all  mankind ;  and  if  civil  contentions,  or  foreign 
warfare,  shall  hereafter  occur  less  frequently  than  they  have 
hitherto  done,  or,  when  occurring,  shall  be  carried  on  with  a 
greater  degree  of  respect  to  the  rights  of  individuals  in  their 
persons  and  property,  all  this  will  be  owing,  next  to  the 
wider  diff'usion  of  christian  principles  and  practice,  to  the 
more  general  acknowledgment  of  the  truths  of  our  science. 

With  the  observations  before  him  which  have  just  been 
made  in  this  "  conclusion"  of  the  present  treatise,  may  the 
author  not  hope  that  his  readers  will  agree  with  him  in   the 


POLITICAL    ECONOMY.  407 

opinion,  that  political  economy  is  not  only  entitled  to  a  place, 
as  he  has  already  said,  in  the  highest  rank  among  the  various 
branches  of  human  knowledge,  but  that  it  is  in  fact  the 
master  science  of  the  age  in  which  we  live  ?  And  will  they 
not  therefore  pronounce  him  to  be  in  no  wise  extravagant, 
when  he  urges  the  study  of  it  upon  every  individual  in  the 
community  having  leisure  for  the  purpose,  and  especially  upon 
every  individual  who  aspires  to  the  attainment  of  a  liberal 
education  ? 


(     409     ) 


ADDENDA. 


1.  Is  my  second  book,  when  I  adduced  the  extensive  use  in 
Ireland  of  the  potato  as  an  illustration  of  the  disadvantage  of 
cheap  food  and  dear  luxuries,  when  compared  with  a  state 
of  things  in  which  food  was  dear  and  luxuries  cheap,  I  did 
not  intend  to  imply  that  I  was  stating  the  only  mode  in  which 
the  use  of  that  root  by  the  people  of  Ireland  has  tended  to 
deteriorate  their  condition.  The  other  modes  in  which  it  has 
this  tendency  are  stated  by  Mr.  M'Culloch  in  the  following 
manner.  I  quote  from  the  valuable  notes  in  his  edition  of  the 
"  Wealth  of  Nations." 

"  In  the  first  place :  owing  to  the  impossibility,  as  to  all 
practical  purposes  at  least,  of  preserving  potatoes,  the  surplus 
produce  of  a  luxuriant  crop  cannot  be  storedup  or  reserved  as 
a  stock  to  meet  any  subsequent  scarcity.  The  whole  crop 
must  necessarily  be  exhausted  in  a  single  year ;  so  that  w^hen 
the  inhabitants  have  the  misfortune  to  be  overtaken  by  a 
scarcity,  its  pressure  cannot  be  alleviated,  as  is  almost 
uniformly  the  cas2  in  corn-feeding  countries,  by  bringing  the 
reserves  of  former  harvests  into  the  market.  Every  year  is 
thus  left  to  provide  sustenance  for  itself.  When,  on  the  one 
hand,  the  crop  is  luxuriant,  the  surplus  is  comparatively  of 
little  use,   and  is  wasted  unprofitably ;    and  when,   on  the 


410  THE  PRINCIPLES  OP 

Other  hand,  it  is  deficient,  famine  and    disease  necessarily 
prevail." 

"  In  the  second  place :  The  general  opinion  seems  to  be, 
that  the  variations  in  the  quantities  of  produce,  obtained  from 
land  planted  with  potatoes,  are  decidedly  greater  than  the 
variations  in  the  quantities  of  produce  obtained  from  land  in 
which  wheat  or  any  other  species  of  grain  is  raised." 

"And  lastly.  Owing  to  the  great  bulk  and  weight  of  potatoes, 
and  the  ditficulty  of  preserving  them  on  ship-board,  the 
expense  of  conveying  them  from  one  country  to  another  is  so 
very  great,  that  a  scarcity  can  never  be  materially  relieved, 
by  importing  them  from  abroad.  In  consequence,  those  who 
chiefly  depend  on  potatoes  are  practically  excluded  from  par- 
ticipating in  the  benevolent  provision  made  by  nature  for 
equalising  the  variations  in  the  harvests  of  particular  countries 
by  means  of  commerce,  and  are  thrown  almost  wholly  on  their 
own  resources." 

"  For  these  reasons,"  continues  Mr.  M'Culloch,  "  it  seems 
as  if  the  rapid  extension  of  the  potato  cultivation  was  one  of 
the  most  serious  evils  with  which  this  and  most  other  Euro- 
pean countries  are  now  threatened." 

It  is  evident,  I  may  add,  that  it  is  by  frequently  depressing 
for  a  time  the  condition  of  a  people  the  circumstances  above 
enumerated  have  a  tendency  -permanently  to  depress  their 
condition. 

2.  When  treating  of  paper-money  and  banking,  the  reader 
will  recollect  that  my  language,  in  general,  had  no  reference 
to  the  deposites  made  with  the  banks  by  individuals,  and 
which  they  were  at  liberty  to  withdraw  again  at  their  discre- 
tion ;  and  that  the  reason  for  this  was  the  entire  similarity  in 
the  nature  of  the  business  of  a  bank  of  circulation,  whether  it 
discounted  the  notes  of  individuals  and  issued  its  own  notes 
on  a  capital  of  its  own  exclusively,  or  on  an  equal  capital 
composed  in  part  of  that  which  was  properly  its  own,  and  in 
part  of  the  average  amount  of  deposites  in  its  possession. 


POLITICAL    ECO^fOMV.  411 

The  reader  will  also  recollect  that  I  have  all  along  estimated 
the  efficiency  of  the  different  coinponent  portions  of  the  cir- 
culating medium,  as  well  by  the  comparative  rapidity  with 
which  they  circulate,  as  by  their  quantity.  Having  done  all 
tills,  I  supposed  that  it  was  unnecessary  for  me  to  state  expli- 
citly any  opinion  as  to  whether  the  bank  deposites  were,  or 
were  not,  a  constituent  portion  of  the  circulating  medium. 
Upon  farther  consideration,  however,  I  liave  become  some- 
what apprehensive  lest  my  opinion  on  this  point  should,  after 
all,  be  misunderstood.  Accordingly,  I  now  state  that  those 
deposites  compose,  I  think,  as  much  a  portion  of  that  medium, 
us  if  they  were  in  the  immediate  possession  of  their  owners. 
Indeed,  they  compose  a  more  efficient  portion  of  it;  because, 
while  they  are  held  by  the  banks,  they  give  occasion  to  the 
discharge  of  debts  by  means  of  bank  checks,  or  of  transfers 
on  the  books  of  the  banks  of  an  entry  to  the  credit  of  one 
individual  to  the  credit  of  another  ;  and  because  they  furnish  a 
basis  on  which  a  certain  portion  of  tiie  circulation  of  the  banks 
is  made  to  rest. 

To  illustrate  the  last  remark,  and  at  the  same  time  to  sruard 
against  any  mistake  being  made  by  the  i^eader  concerning 
another  point  in  respect  to  which  I  may  possibly  not  have 
expressed  myself  with  sufficient  distinctness,  I  may  mention 
that,  on  the  occurrence  of  an  extraordinary  demand  for 
specie,  this  will  be  drawn  from  the  banks,  not  merely  in 
exchange  for  their  notes,  but  also  by  the  withdrawal  of  the 
deposites  made  with  them.  The  consequence  will  manifestly 
be  tiiat  the  banks  will  cui'tail  their  discounts,  and  diminish  the 
amount  of  their  paper  in  circulation,  as  well  on  one  of  these 
accounts  as  on  the  other;  or  faihng  to  curtail  sufficiently, 
will  on  both  those  accounts  be  obliged  to  suspend  specie  pay- 
ments. 

3.  Since  that  part  of  my  treatise  relating  to  money  and 
banking  was  written,  a  great  variety  of  suggestions  have  been 
made  for  the  purpose  of  correcting  the  evils  of  our  existing 


412  THE  PRINCIPLES  OP 

system  of  banking.  It  would  be  scarcely  worth  while  for  me 
now  to  go  at  any  length  into  a  discussion  of  these ;  and  I  shall 
content  myself  with  a  short  notice  of  one  or  two  among  them 
that  are  of  a  nature  to  require  it  most. 

It  has  been  proposed  that  the  stock  of  every  new  bank 
should  be  always  sold,  in  the  first  instance,  at  public  auction 
to  the  highest  bidder ;  the  excess  of  the  proceeds  of  the  sale, 
above  the  par  or  nominal  value  of  the  stock,  to  go  into  the 
treasury  of  the  state.  This  would  be  a  very  convenient  mode 
of  transferring  from  the  bankers  to  the  pubhc  the  extraoidi- 
nary  profits  which  they  might  otherwise  receive,  and  of 
placing  them  on  a  level  with  all  other  capitalists.  But,  in 
itself,  it  would  be  evidently  altogether  unavailing  to  accomplish 
the  great  and  desirable  object  of  preventing  the  alternate 
expansions  and  contractions  of  the  circulating  medium,  w  Inch 
are  attributable  to  our  American  system  of  banking.  Neither 
the  holders  of  bank  stock,  nor  the  directors  who  are  their 
agents,  will  be  the  less  anxious  to  make  large  profits, 
or,  which  is  the  same  thing,  to  receive  large  dividends, 
because  they  had  originally  to  make  purchase  of  the  stock  at 
a  higher  price. 

The  measure  accordingly,  which  has  at  the  same  time 
been  proposed  for  checking  the  undue  expansions,  and  conse- 
quent contractions  of  their  circulation,  by  the  banks,  is  to  limit 
by  law  the  amount  of  their  dividends,  by  rendering  it  obliga- 
tory on  them,  where  their  annual  profits  exceed  a  certain  per 
centage  on  their  respective  capitals,  to  pay  over  the  excess 
into  the  public  treasury;  which  excess  is  then  to  be  at  the 
disposal  of  the  legislature  for  any  purposes  to  which  the  other 
portions  of  the  money  of  which  it  disposes  are  applied.  I  have  no 
hesitation  in  saying  that,  if  we  are  much  longer  to  have  our  . 
present  system  of  banking  in  an\'-  form,  this  would  be  a 
desirable  modification  of  it.  It  is,  however,  not  by  any  means 
free  from  objection. 

In  the  first  place,  while  the  advocates  for  it  declare  them- 


POLITICAL  ECONOMY.  413 

selves  to  be  opposed  to  the  receiving  hereafter  by  the  state  of 
a  bonus  as  the  price  of  incorporating  a  bank,  the  state  will  in 
reality  be  receiving  such  a  compensation  for  doing  this,  and 
in  two  different  ways ;  by  the  excess  of  the  price  of  the  stock, 
when  sold  at  public  auction,  over  its  par  value ;  and  by  the 
amount  which  may  occasionally  be  paid  into  the  public  trea- 
sury, in  consequence  of  more  profits  having  been  realised  by 
the  bank  than  is  allowed  by  the  act  incorporating  it.  That  this 
last  will  sometimes  occur,  will  follow  from  the  anxiety  which 
the  directors  of  the  banks  will  naturally  entertain  to  divide  as 
much  among  their  constituents,  the  stockholders,  as  the  law 
allows  them  to  do :  to  extend  the  circulation  of  their  notes 
beyond  what  is  necessary  to  accomplish  this  object,  will  be 
looked  upon  by  them  as  erring  on  the  safe  side.  Now  I  may 
ask  if  there  be  not  some  danger  of  the  reception  of  such  a 
bonus  as  this  having  the  effect  of  disturbing  the  regular  and 
impartial  action  of  the  legislature,  when  the  question 
shall  be  brought  before  them  of  the  re-incorporation  of  a 
bank  1  Will  not,  quite  probably,  one  bank  have  its  charter 
renewed,  and  another  be  refused  a  renewal  of  its  charter,  on 
the  ground  that  the  one  had  been  more  liberal  than  the 
other  in  the  tribute  paid  by  it  into  the  pubhc  treasury"? 
And  again,  will  not  all  this  take  place  to  an  extent 
sufficiently  great  to  diminish  materially  the  advantages 
anticipated  from  the  proposed  restriction  upon  the  busi- 
ness of  banking  ? 

But  there  will  be  an  extraordinary  inducement  for  the  legisla- 
ture to  multiply  the  number  of  banks,  in  the  amount  to  be  receiv- 
ed by  the  state  from  the  sale  of  their  stock  in  the  manner  before 
described.  And  although,  as  was  before  shewn,  after  a  certain 
amount  of  capital  has  been  already  invested  in  banking,  no 
new  bank  can  obtain  any  share  of  the  circulation  excepting  at 
the  expense  of  that  of  the  banks  previously  existing,  and 
every  incorporation  of  a  new  bank  will  therefore  be  interfering 

53 


414  THB  PRINCIPLES  OP 

with  the  profits  of  these  banks,  and  will  be  reducing  them 
more  and  more  below  the  ordinary  profits  upon  the  value 
which  was  originally  paid  by  the  stockholders,  there  can  be 
no  doubt  of  the  multiplication  of  the  banks  going  on  until  at 
length  no  bank  shall  be  able  to  make  more  than  the  ordinary 
rate  of  profit  upon  the  par  t^alue  of  its  stock  ;  when,  too,  no 
one  would  be  disposed  to  invest  his  capital  in  the  business  of 
banking,  rather  than  in  any  other  branch  of  industry.     At 
this  point  in  the  series  of  changes  ensuing  from  the  adoption 
of  the  measures  under  examination,  and  indeed  long  before  it, 
it  is  plain  that  the  restriction  of  the  dividends  or  profits  of  the 
banks  to  a  certain  per  centage  would  be  wholly  nugatory.    I 
may  add,  what  some  of  those  who  have  proposed  those  mea- 
sures are  scarcely  aware  of,  that  the  state  of  things,  thus 
shewn    to  be  the  ultimate  consequence   of   their   adoption, 
is   very    similar  to   that  which   would   take    place  with   a 
free    trade    in    banking,    comprehending,    under    the    term 
banking,  the  issuing  of  a  paper  currency.      This  similarity 
in  the  two  cases,  my  readers,    after  all  that  I  have    deli- 
vered  on  the   subject   of    banking    in   my  third  book,  will 
be  able   to   perceive   distinctly  without   any  farther   expla- 
nation on  my  part. 

I  have  said  that  the  measures  into  the  tendency  of  which  I 
have  been  inquiring  would  be  a  desirable  modification  of  our 
American  system  of  banking,  because  they  would  without  doubt 
for  a  time  have  the  effect  to  alleviate  the  evils  of  the  system  ; 
and  not  because  of  their  being  likely  to  lead  the  way  to  the 
ultimate  adoption  of  a  free  trade  in  the  business  of  banking. 
By  reducing,  too,  the  profits  of  the  capital  invested  in  bank- 
ing to  the  ordinary  rate  of  profits,  they  would,  quite  probably, 
abate  the  zeal  of  the  holders  of  bank  stock  for  the  existing 
state  of  things,  and  prepare  the  way  for  the  introduction,  in 
place  of  a  bank  note  circulation,  of  a  circulation  of  treasury 
notes  issued  by  the  government,  and   constituted  in   some 


POLITICAL    HCONOMY.  415 

such  manner  as  that  described  in  the  present  treatise, — the 
only  paper  money  which,  in  my  opinion,  combines  all  the 
advantages  of  bank  notes,  and  which  is  at  the  same  time  not 
more  susceptible  of  alternate  expansions  and  contractions  than 
specie  itself. 


THE    END. 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 

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